How to Rent at Fair Market Value

Written by michelle hornaday
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Establishing fair market rent for your rental property is not an exact science. Fair market value is defined as "the highest price that a ready, willing and able buyer (or tenant) is likely to pay and the lowest price that a ready, willing and able seller (or landlord) is likely to accept for a subject property," according to Financial Web. Determining that perfect number is possible by doing a little research and knowing what your property has to offer tenants.

Skill level:
Moderate

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Instructions

  1. 1

    Identify comparable properties, ideally within a half-mile radius of your rental property. Drive through the neighbourhood looking for signs advertising properties for rent, and take note of their location and contact information. Look on websites, such as Craigslist.org, for rental properties advertised in the area, and start gathering data on the rents being charged based on the size of the house. If you know properties currently under lease with paying tenants, these would be the ideal comparables to use. MSN Real Estate suggests using newspaper ads, calling property management companies or visiting Move.com as other sources of prevailing rates and comparable properties in the area.

  2. 2

    Calculate a typical price per square foot based on the comparable properties you find. Because each property differs in size, number of bedrooms, bathrooms and lot size, it is helpful to use a formula to narrow down a range for your own fair market rent value. Divide the square footage of the home by the rent to determine the price per square foot. Do this for three to five homes in the area and see what prices you find. Then multiply the average price per square foot by the square footage of your property.

  3. 3

    Consult the current year's fair market rent table published by the Department of Housing and Urban Development for Section 8 housing vouchers. This chart is published each year for the entire U.S. and should confirm whether your estimated rent is close to the range of HUD's rental guidelines. Your fair market value may be higher, but it provides a resource for establishing a range.

  4. 4

    Advertise your property for rent once you determine a fair market rent, and evaluate the initial response from potential tenants. If you receive immediate feedback and interested tenants, your rent is probably set at fair market value. Many factors could influence the amount of interest in your property, such as supply and the condition and location of the home, but if a significant amount of time passes without any interested parties, consider slightly reducing the rent and see if more activity occurs.

Tips and warnings

  • Some websites, such as Rentometer.com, collect user data on rental rates and may help to confirm whether your rent is aligned with those in the area.
  • Many landlords set their rent based upon their own costs, such as mortgages and taxes. While it is preferable to clear a profit each month, this method of rent determination does not necessarily lead to fair market value.

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