SS239: Analyzing Rental Demand

SS239: Analyzing Rental Demand

In this Strategy Saturday episode, Charles Carillo explains how to analyze rental demand like a professional before buying a property. He breaks down seven key factors—from population growth to vacancy rates and long-term crime trends—that influence market rent and tenant demand. You’ll learn how to compare properties accurately, test pricing through rental ads, and gather real-world insight from property managers. Whether you’re a new or experienced investor, this episode will help you stop guessing rents and start underwriting with clarity and confidence.

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Talking Points:

  • It is essential to analyze the rental demand in the local market before purchasing a multifamily property. When I say “local market,” I am referring to the specific neighborhoods within the market you are interested in investing in, since real estate is hyperlocal. Rents at two properties just a few blocks apart could differ significantly, and by understanding the local market, investors can better position themselves for success.
  • What are the core principles of rental demand?
    • 1. Population Growth. More people mean more demand for housing.
    • 2. Job Growth. A diverse job market with larger employers and new employers moving in will attract more people and more renters.
    • 3. Affordability of Homeownership. If the average cost of a house in your area is $300,000 and you are purchasing apartments for $100,000, there is a large delta that renters need to overcome to become homeowners. The closer the numbers, the more competition you, as a property owner, will have from tenants purchasing instead of renting.
    • 4. Income Levels. I always look at income as it is broken down throughout a city. It helps you decipher where the neighborhoods change, which gives you more context when looking at properties for rent.
    • 5. Supply and Absorption of New Rental Units. How many new rental units have come on the market, what was the absorption rate, and how many units are currently being constructed?
    • 6. Vacancy Rate. What is the market’s vacancy rate for new and existing rental units?
    • 7. Crime Rate. Which direction has the crime rate been going over the past 20 years?

Alright, now that we know what causes demand—how do we measure it in the real world?

  • Here are a few tactics for measuring rental demand and determining market rents. I combined these two points because they are crucial to understanding a market and underwriting a property. It is also easier to confirm the rental demand of a market when you have a subject property. If you are underwriting a property currently, you could use this property or randomly choose a property on the market in your target market.
    • Enter the property’s address on a few websites like Apartments.com, Rentbits, Rentometer, and Zillow. Check around the property’s immediate area and see what is for rent. 
    • Make sure the comparable properties are apples to apples. The vintages are similar, and the size of the property and types of amenities (if any) are similar as well. If you are considering buying a 6-unit apartment complex, I would try to find comparable properties in a unit range of 2 – 20 units. I would also review larger properties and single homes to see what they go for, but you want to find accurate comparables on which to base your underwriting.
    • What is the condition of the units for rent? How does their condition differ from the subject property? What is the difference in rents? How many similar units are you finding, and how close are they to the subject property? How long have the listings been live? Are they offering any concessions or move-in deals?
    • But here’s where it gets really practical. Place a rental ad on Craigslist for a renovated version of the subject property and see how many inquiries you get. This will immediately tell you the rental demand, and you can do this from the beginning. However, we don’t just want to know the rental demand; we want to know the rental demand for the renovated unit at market rent. The rental demand for the end product you will be renting out. When I used to own C-class properties, we would put up an ad on Craigslist and Zillow and get 50+ inquiries within 2 days. That type of rental demand will ensure you can rent the unit to good tenants after renovating it.
    • Data is one thing—but real insight comes from people who are in the trenches every day. If you are already speaking with a property management company, ask them their thoughts on the current rents at the subject property, your proposed renovations, budget, and future rents to see what feedback they have. I would trust the feedback from a property manager over that of other professionals, like real estate agents, since the managers rent similar units daily in that market.
    • Want to level it up even more? Here’s a move most investors skip—but shouldn’t. Start calling some of the comparable properties and mystery shop them. Speaking to the leasing agents, see what types of specials they are offering. What else are they utilizing to entice new tenants? Free months of rent, no or minimal upfront deposit, waived fees, etc. Are they offering these deals on all units or just specific size units? Important information to take into consideration when looking for properties.
  • So why does all this matter? Understanding the rental demand and market rents of a market will help you become a more informed investor, which will set you apart from other investors. 
  • Additionally, I always drive markets before looking at properties in an area or purchasing a property. With today’s online tools, you can do a lot of your research upfront, but nothing can replace actually driving the streets of the neighborhoods you are targeting. It always surprises me how fast neighborhoods can change from one block to another.

Transcript:

Charles:
How well do you really know your rental market and what type of market research have you actually performed? Real estate investors who have never analyzed their local rental market will struggle to determine market rents and rental demand and they’re also gonna be unable to accurately underwrite properties. Welcome to Strategy Saturday, I’m Charles Carillo and today we’re breaking down how to analyze rental demand like a professional real estate investor before you buy. So let’s get started. So it’s essential to analyze the rental demand in the local market before purchasing a property, a multi-family property more specifically. And when I say local market, I’m referring to the specific neighborhoods within the market you were interested in investing in. Since real estate is hyperlocal, now rents at two properties just a few blocks apart, could differ significantly and by understanding the local market, investors can better position themselves for success.

Charles:
So what are the core principles of rental demand? So number one is population growth. More people means more demand for housing. Number two is job growth. I diverse job market with larger employers and new employers moving in will attract more people and more renters. I really don’t wanna see one of those employers over 20% and I really don’t wanna see one of those industries really over 20% either. Number three is affordability of home ownership. Now if the average cost of a house in your area is $300,000 and you are purchasing apartments for say a hundred thousand dollars each, there’s a large delta that renters need to overcome to become homeowners. The closer the numbers, the more competition you as a landlord will have from tenants purchasing instead of renting. Number four is income levels. Now I always look at income as it’s broken down throughout a city.

Charles:
It helps you decipher where the neighborhoods change and which gives you more context when looking at properties for rent. Obviously if we are looking at a property for rent in an area where rents are a thousand dollars a month and you’re saying Well we’re gonna go to $1,500 a month with this unit, but then I look at the income in this area is 2,500 or $30,000 a year, you’re not gonna have people in that area be able to afford those properties. Now if you say you wanna bring people in stuff like this, that’s a whole different ballgame. It takes many more years. You can’t just have people moving into an area you can’t rent to the tenants there and that’s the whole thing that gets you really behind what you’re trying to do. So number five, going further is the supply and absorption of new rental units and how many new rental units have come on the market and what is the absorption rate and how many units are being currently constructed.

Charles:
So these three things, they might be overlooked by some investors, some people might just look at new rental units coming on and not look at the other two and then they might look at new units coming on and the absorption rate and not look at how many units are being constructed. So what’s in the pipeline. The other thing too is we’re gonna go one step further and number six is vacancy rate and what is the market’s vacancy rate for new and existing rental units? So we’re going back to what we were doing with those ones In construction, if you’re buying properties built in the sixties or seventies or eighties, you’re gonna have, as you get further away into older properties from new construction, that new construction’s gonna be less really enticing unless there’s so much new product out there that people are pretty much giving away the apartments for the first couple years or something like this that’s gonna entice some tenants from moving up into ’em.

Charles:
You know you have like B going into A and C going into B and you know, wherever you are in that process you’ll see some renters maybe move. However, if you’re seeing that maybe in your kind of target unit and classes of properties there’s a low vacancy but maybe in the nicer properties there’s a higher vacancy, well that’s something that shows you that you might not be affected for what your business plan is. It’s always though you wanna keep an eye on it and what is currently being constructed because at some point when so much comes on the market, no matter how many years older or how many classes down from a that you’re kind of working in, you’re gonna have some effect on what’s happening. It’s gonna affect your business plan and kind of your strategy altogether. Now number seven, last one is crime rate.

Charles:
So which direction has the crime rate been going over the past 20 years? And I always say this is like the inverse of population. So with population we wanna see it trickling up over say 20 years. I always do 20 years. You don’t wanna do like you don’t wanna do like five years or something like this. Crime rate is where people also can kind of start fudging stuff and I’ll explain that in one second, but with crime rate we wanna see it evenly ticking down, okay, over 20 years. If you look in a short period people can manipulate that because if say a new mayor comes in or a new police chief and they really start cracking down so people get arrested, right? And they’re incarcerated and all this type of stuff and then what happens is that they don’t see before and they don’t see after kind of what’s gonna happen if you go over 20 years and you see crime consistently decreasing, that shows that not only they have been tough on crime, but it’s also they’ve been investing in other parts like healthcare and education in that area as well.

Charles:
You cannot maintain a crime rate so low or a declining one for 20 years or so, right? And obviously there’s ticks up stuff like this, that’s what we’re doing over 20 years, but without investing into other parts of the community which makes that difference. And that’s something as an investor they might not look at, you might look at crime rate from like the last five years and be like, oh it’s on its way down. But the thing though is if you look over 20 years like whoa, we had some huge spikes and what was going on here? That’s a little bit of a red flag. Not that you’re not gonna invest there for sure, but you have to know kind of which way and direction the community is going at that point. But if you look over 20 years, you see that it’s going the right direction.

Charles:
Now here are some tactics now when we’re going into kind of rental demand and determining marketing rents and I combine these two points because they are crucial to understanding a market and underwriting a property, which is really what we’re getting to. Now, it’s also easier to confirm the rental demand of a property over a market when you have a subject property at hand. So if you’ve been looking at a property, if you’re underwriting a property currently, I mean you could use this property or randomly choose a property on the market in your target market networks. So first off, we’re gonna do what every other investor or person looking to buy a property would do. We’re gonna enter their properties address on a few different websites, but we’re gonna utilize like maybe like apartments.com, rent bits, rent the meter and Zillow. And I wanna check around the property’s immediate area and see what else is for rent and make note of these properties.

Charles:
If it’s gonna be from a mom and pop or it’s gonna be like from a professional agent or property management firm that’s listing ’em too. These are things you want to kind of know. You’re gonna have property managers that are probably gonna be more likely to kind of push that rent and you’ll probably have people mom and pops that might not push it as far and that could change, but usually the property manager’s kind of like, oh, I rented one over here for 1300 and they have another tenant or another unit that comes up from, you know what I mean? And they put up there and let’s see if we can get 1320. Whereas with a mom and pop they might say it’s renting for 1100 and when I renew it, you know, new tenant comes in, maybe I’ll put it like 1150 or something like this, right?

Charles:
Or maybe I’ll just put at 1100 and easily rent it to a good tenant. So you wanna make sure that when you start finding these comparable properties and recording them, you wanna make sure that they’re apples to apples. And this is super important because the vintages have to be similar and the size of the property and the types of amenities, if any, are similar as well. And if you’re considering buying a six unit apartment complex or try to find comparable properties in like a range of like two to 20 units because you’re not gonna have like really amenities for those properties and that’s kind of what you’re doing. And also the living situation’s gonna be similar. So I would much rather take a comparable from a quadplex versus a a hundred unit complex if I had a duplex to rent, right? Because there’s people that like I’m living in an apartment or what I’m gonna do is I’m gonna live in like a small rental house.

Charles:
There’s a different experience they’re gonna have with minimal tenants, easier in and outta the property, usually parking and you know, there’s not like elevators and stuff like this. So you keep those two things as a true comparable. Now it also review larger properties and single family homes to see what they go for. But you wanna find accurate comparables on which to base you’re underwriting and why. I would look as, I just kind of went back on what I was saying, I just kind of wanna see ’cause if I have a two bedroom, two bath unit and then I start seeing apartments and so mine in a duplex, I’m trying to get 1400 but people are renting the same thing and they’re renting it for 1300 in a apartment complex. You know what I mean? Maybe that’s like pushing what it is. I’ll see it. Maybe people pay this a hundred dollars additional every month for having, you know, being in a duplex versus being in an apartment complex.

Charles:
I’m not sure. But it’s also something to be aware of versus at the same time maybe somebody says I can rent a single family house for 1600 so I’m renting, you know, one half of a duplex for 13 or I rent my own house for 1600. That’s also another thing that you really have to be, you know, weary of, of what people are looking at when they’re going through. ’cause You have some people are, we’re gonna rent an apartment, right? But then people start poking around, they might say, well you know, I can actually rent this side of a duplex or I can rent in this different area over here. It looks like rents have come down or I can rent my own house. So you just have to be aware of everything. But like when you’re really basing on doing your underwriting, we are really focusing on very similar properties to what the subject property is.

Charles:
So going one step further, what is the condition of the units for rent? So how does their conditioner differ from the subject property? What is the difference in rents? How many similar units are you finding? How close are they to the subject property? How long have the listings been alive and are they offering any concessions or moving deals? So one of the things is that with rentals, they usually don’t last that long, but it’s one thing a little trick real estate agents do, they’ll take the property off, they’ll put it back on all this kind of stuff like this. So it shows that it’s just like a new listing and, but Lia hasn’t sold like four times before they listed it. But the thing is with rentals, I kinda wanna see how long it’s been on professional management company or it’s a like large apartment complex.

Charles:
It’s been on forever because they’re always renting units. They consistently want incoming rents. If you’re looking at something like a a, you know, half of a duplex rent and it’s been up there for three months, I don’t know if that’s really a strong comparable, you know what I mean? I wanna look at, see what stuff’s going on there, give a call and ask them what’s going on. Like you were a renter too and see kind of what feedback they’re saying, see how they kind of just what they say and how they ask questions to you and what they’re looking for and you know, their whole demeanor of what’s going on. ’cause This is what people that are looking to buy or rent in your subject property, what they’re gonna be going for as as well. Next I could do is you can place a rental ad, say like on Craigslist you can probably also do it on Zillow but on Craigslist or other markets out there for a renovated version of the subject property that you’re looking at and see how many inquiries you get.

Charles:
And this will immediately tell you the rental demand. And you can do this from the beginning. However, we don’t just want to know the rental demand, we wanna know the rental demand for the renovated unit at the market rent that you’re shooting for. So if you have units right now, you put ’em up there, they’re dated unit hasn’t been updated in 20 years and you’re gonna get, you know, let’s just say a thousand dollars a month for this property. Now you see some other ones that are up there and they’re like 1350 something like this that are renovated. It looks like someone put five, $10,000 into ’em that look really nice and you’re like, okay, that’s what I really want to do. Take some pictures of that property of those finishes and put them into your rental listing and see I found this street if here how many calls I’m getting for this updated unit for 1350.

Charles:
And that’s gonna immediately tell you what you’re doing. And literally when we used to own C-Class properties and stuff like this, we’d put up an ad on Craigslist and Zillow and we’d get 50 plus inquiries within two days. You would just get flooded every like 20 minutes during the day. You’d be getting new inquiries coming in. And I mean I remember we had an agent that would rent them for us and we would just pay him like two 50 to rent the apartments. Like I would have a list of properties, I mean a list of tenants to work through and he would just be like, all right, everybody comes here at five, everybody comes here at seven. Whatever it is. However, his process was that it worked for him, but like he never had a lacking of inquiries. And you know, the type of rental demand will ensure you can rent the unit to good tenants after renovating.

Charles:
So the more calls you have, the more people you can pick through and find that perfect tenant for your property. It’s like when I speak to private lenders and you know, if they speak to two people wanting to get a loan every month, it’s difficult ’cause they’re trying to make every one of those loans work, right? Probably not great loans though maybe. Whereas if they had 20 people calling them every month and they want to do just two loans, at that point they can really pick where they want to put their funds. And that’s really where you wanna be. You wanna be able to pick and choose who’s gonna be best, who’s gonna be the best tenant there for your property, for your other tenants on property on the site, and also who’s gonna like take care of paying rent on time and who’s gonna stay there for multiple years.

Charles:
And once you found this person, you can do that by having a lot of inquiries. Additionally, if you’re already speaking with a property management company, ask them their thoughts on the current rents at the subject property, your proposed renovations, your budget and future rents and see what feedback they have. And I would trust the feedback from a property manager over that of other professionals like real estate agents since the managers rent similar units daily in that market. I remember when I moved down to Florida and this one city, I was interested in buying properties and you know, buying rental properties and I was talking to some property managers there and you know, I was on the phone with this guy for like five, 10 minutes and then he tells me, he goes, we just really haven’t made money in this market before or in this city.

Charles:
And right there red flag out 10 minute call, I now know never to buy anything in that city. You know what I mean? Maybe until I review it or speak to someone else years down the road, whatever it is. But like I know from my search today for buying rental properties, that’s that he’s out of it. I just had someone that’s a professional in that market tell me that it’s very difficult to make money in that market. You know what I mean? You might be enticed by low prices and all this other stuff, but the problem is that it’s just maybe a difficult class and you know, clientele that your tenant base you’re dealing with. Now, if you wanna take this a step further, you can start calling some of the comparable properties and mystery shop them, which definitely if you’re buying like the first time in a market, I would do this and speaking to leasing agents and see what types of specials they’re offering and what else they’re utilizing to entice new tenants.

Charles:
You know, free months of rent, no or minimal upfront deposits, waive fees, et cetera. And are they offering these deals on all units or just specific size unit, you know, important information to take into consideration when looking for properties. And this is one thing, this is where investors can get tripped up a little bit when they’re not looking at new inventory because they might say, oh, I’m buying B class properties that are 25 years old, new stuff coming on the market’s $2,500 stuff I’m renting is 1800. There’s never gonna be like, there’s no touch there. You know, this is eight, $9,000 a year difference. But when you might call up, and I’ve called before where they have different prices. So if you call up seen before, they’re like, okay, it says 2,500 on the website, what we’re gonna do is we’re doing a special, now it’s 2250, we’re gonna give you a first month for free.

Charles:
We’re gonna give you a moving truck for free, we’re gonna give you a tv, like all this stuff free. And you’re like, whoa. Like this is now, it’s really getting close to what I’m offering for a brand new product. Yes, your tenants are most likely going to be experiencing that as well. So that could be an issue that starts making it more difficult to rent your units when you’re just like, okay, just 12 month lease, $1,800. You know what I mean? So you have to know everything, even if it’s for properties outside of your target asset class. And understanding the rental demand and market rents of a market will help you become a more informed investor, which will set you apart from other investors. Additionally, I always drive markets before looking at properties in an area or purchasing a property. You know, with today’s online tools, you can do a lot of your research upfront like I spoke about, but nothing can replace actually driving the streets of a neighborhood you’re targeting.

Charles:
And it also surprises me how fast neighborhoods can change from one block to another. And your tenants will realize that too when they’re coming to look at your property. So please remember to rate reviews, subscribe, submit comments, and potential show topics at globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndicationsuperstars.com. Look forward to two more episodes next week. See you then.

 

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