The challenge facing the owners of rental properties was underscored by a man named Jimmy McMillan, who once ran for governor of New York on the-rent-is-too-(darn)-high platform.

1. DETERMINING
INVESTMENT VALUE:
HOW TO KNOW WHEN
THE RENT ISN’T TOO
DARN HIGH
M I C H A E L Z A R A N S K Y

2. The challenge facing the owners of
rental properties was underscored
by a man named Jimmy McMillan,
who once ran for governor of New
York on the-rent-is-too-(darn)-high
platform.
In fact, that was what he dubbed his
party: The Rent Is Too (Darn) High.
(Footnote: He was later evicted
from his rent-controlled apartment
in New York City because his rent
was too darn low.)
But that is the key question: How
does a real estate investor avoid
making the rent so darn high that
potential residents are scared off,
while keeping it high enough to
make a buck?

3. T h e g o a l w i t h a n y r e n t a l p r o p e r t y , a f t e r a l l , i s a l w a y s
p o s i t i v e c a s h f l o w — f o r a l a n d l o r d t o a t t r a c t r e n t e r s w h o
w i l l h e l p h i m o r h e r p a y t h e m o r t g a g e ( o r , i n t h e c a s e o f a
h o u s e , p a y i t , p e r i o d ) w h i l e c o v e r i n g t h e c o s t s o f
m a i n t e n a n c e , r e p a i r a n d v a c a n c i e s . A c c o r d i n g t o o n e r e p o r t ,
a l a n d l o r d s h o u l d s t r i v e t o p o c k e t a p r o f i t o f s o m e w h e r e i n
t h e n e i g h b o r h o o d o f s i x p e r c e n t a t t h e e n d o f a n y g i v e n
m o n t h .
M I C H A E L Z A R A N S K Y

4. Thefirstfactortotakeintoaccountwhenattemptingtomeetthatgoalinvolvestheancient
axiomaboutlocation,location,location—location,asitpertainstothequalityofa
neighborhoodaswellasproximitytoschools,publictransportation,majorthoroughfaresand
businesses.
Twootherfactorstoconsiderareconditionandcompetition.Itstandstoreasonthatupkeepis
criticaltoaproperty’sappeal,anditpaystokeepabreastofthecompetitioninyourarea—
evenifitinvolvesvisitingcomparableapartmentstogetsomesenseofwhatyou’reupagainst.
Thenthereareamenities.Theyincludesuchthingsasview(agardenvistaisobviouslymore
appealingthanthatofaparkinglot,forinstance),updates(state-of-the-artappliances,
hardwoodfloors,etc.),spaciousness,layoutandfloorlevel(higherfloorsaregenerallymore
desirable).
Allthosethingshelpdeterminemarketvalue,andaproperty’srentisnothingmorethana
percentageofthat.Aprofessionalappraisercangaugefairmarketvaluebyperformingan
inspection,andthenacomparativemarketanalysis.
M I C H A E L Z A R A N S K Y

5. T h e r e a r e a l s o o n l i n e t o o l s , l i k e Z i l l o w ’ s Z e s t i m a t e o r
M a s h v i s o r ’ s i n v e s t m e n t p r o p e r t y c a l c u l a t o r , t h a t e n a b l e a
l a n d l o r d t o m a k e s u c h a d e t e r m i n a t i o n o n h i s o r h e r o w n .
I t i s i m p o r t a n t , h o w e v e r , t o b e c o g n i z a n t o f l a r g e r m a r k e t
t r e n d s , a n d a d j u s t t h e r e n t a c c o r d i n g l y . G e n e r a l l y s p e a k i n g
i f t h e e c o n o m y i s b a d , t h e r e i s g r e a t e r d e m a n d f o r r e n t a l s ,
a s c o n s u m e r a r e m o r e i n c l i n e d t o g o t h a t r o u t e t h a n b u y .
F o l k s a r e a l s o f o r c e d t o d o w n s i z e t o s m a l l e r , c h e a p e r
a p a r t m e n t s .
M I C H A E L Z A R A N S K Y

6. Additionally,thetimeofyearcancomeintoplay.Demandoftenincreasesinthesummertime,
asrenterswithchildrenseektomakeamovebeforetheschoolyearbegins.
Whenitcomestohouses,theruleofthumbisthatalandlordshouldchargebetween0.8
percentand1.1percentofthehome’svalue—higher,ifthehomeisworth$100,000orless,
lowerifit’sworthover$350,000.
Thereare,however,flawsinthatformula,inthatitfailstotakeintoaccountsomeoftheabove
factors,likelocation,amenities,etc.Therearethosewhobelieveabetterrangewouldbe
between1.0percentand1.3percent,dependingupontherentratesofsimilarpropertiesina
givenarea.
Allthesefactorscanhelparealestateinvestorfindahappymedium—tochargerentthatisn’t
toodarnhighforpotentialrenters,whileremaininghighenoughtoturnaprofit.
M I C H A E L Z A R A N S K Y

7. Thank You
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