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Rental Analysis Exercises

10 min
4/6

Key Takeaways

  • Rent comp analysis requires systematic selection, adjustment, and documentation.
  • Rent-to-price ratios vary widely by market—calculate for every target market before investing.
  • Rent forecasting should use multiple scenarios weighted by supply pipeline and vacancy trends.
  • Rent roll analysis identifies value-add upside (under-rented units) and income risk (over-rented units).

These exercises apply rental market analysis concepts to realistic scenarios. Work through each exercise to build proficiency in rent comps, market scoring, rent forecasting, and identifying over- or under-rented properties.

1

Exercise 1: Rent Comps for a 3BR Single-Family Rental

Subject: 3BR/2BA, 1,550 SF, built 2008, good condition, 2-car garage, no pool, in Oakwood subdivision, zip code 37209. Available comps: (A) 3BR/2BA, 1,480 SF, 2007, good, 2-car garage, leased at $1,725/mo, 0.4 miles. (B) 3BR/2BA, 1,620 SF, 2010, excellent (renovated), 2-car garage, pool, leased at $1,950/mo, 0.6 miles. (C) 3BR/1BA, 1,400 SF, 2005, average, 1-car garage, leased at $1,550/mo, 0.3 miles. (D) 4BR/2.5BA, 1,800 SF, 2009, good, 2-car garage, leased at $1,900/mo, 0.5 miles. Task: Identify the two best comps, make necessary adjustments, and estimate the subject's market rent. Consider adjustments for size, condition, bathrooms, garage, and pool. Document your reasoning for each adjustment.

Exercise Guidance
Comp A is the closest match and likely needs minimal adjustment. Comp B needs downward adjustments for superior renovation and pool. Comp C needs upward adjustments for fewer bathrooms and smaller garage. Comp D needs a bedroom count and size adjustment. Your final estimate should fall in the $1,700-$1,775 range.
2

Exercise 2: Rent-to-Price Ratio Across Five Markets

Calculate rent-to-price ratios and GRMs for five markets using the following data. Market A: median home $180,000, median rent $1,450/mo. Market B: median home $425,000, median rent $2,100/mo. Market C: median home $150,000, median rent $1,200/mo. Market D: median home $550,000, median rent $2,800/mo. Market E: median home $210,000, median rent $1,650/mo. For each market: calculate annual rent, rent-to-price ratio, and GRM. Rank the markets from strongest cash-flow potential to weakest. Identify which markets are cash-flow markets (ratio > 8%) and which are appreciation-dependent (ratio < 5%). Discuss what additional data you would need before selecting a market for investment.

3

Exercise 3: Five-Year Rent Forecast

A market has the following rent growth history: Year 1: +2.1%, Year 2: +3.8%, Year 3: +7.2%, Year 4: +12.5%, Year 5 (current): +4.3%. Current median rent is $1,600/month. The supply pipeline shows 4.5% of existing stock under construction (above the 3% threshold). Vacancy has risen from 4.2% to 6.8% over the past 18 months. Task: Project rent growth for years 6-10 under three scenarios: (1) Base case—supply is absorbed and growth normalizes to the long-run average. (2) Bull case—demand accelerates and pipeline delays reduce deliveries. (3) Bear case—full pipeline delivers and demand softens. For each scenario, calculate projected monthly rent in Year 10 and the cumulative rent change from current levels.

Scenario Discipline
The base case should not simply extrapolate the best recent year. Given rising vacancy and a large pipeline, a reasonable base case might project 2-3% annual growth—below the recent 4.3% but above inflation. The bear case should model flat to negative growth for 1-2 years as supply is absorbed.
4

Exercise 4: Identifying Over-Rented and Under-Rented Properties

A 12-unit apartment building has the following rent roll: Units 1-4 (1BR/1BA, 650 SF) at $950, $975, $1,050, $900. Units 5-8 (2BR/1BA, 900 SF) at $1,200, $1,150, $1,350, $1,100. Units 9-12 (2BR/2BA, 1,050 SF) at $1,400, $1,275, $1,500, $1,300. Market rent comps indicate: 1BR/1BA = $1,025/mo, 2BR/1BA = $1,225/mo, 2BR/2BA = $1,425/mo. Task: Calculate the rent gap for each unit. Identify which units are under-rented (contract < market), over-rented (contract > market), and at market. Calculate the total monthly rent gap for the entire building. If you brought all units to market rent at renewal, what would be the annual income change? What risks exist for units currently over-rented?

Key Takeaways

  • ✓Rent comp analysis requires systematic selection, adjustment, and documentation.
  • ✓Rent-to-price ratios vary widely by market—calculate for every target market before investing.
  • ✓Rent forecasting should use multiple scenarios weighted by supply pipeline and vacancy trends.
  • ✓Rent roll analysis identifies value-add upside (under-rented units) and income risk (over-rented units).

Sources

Common Mistakes to Avoid

Analyzing rental markets only at the metro level without submarket segmentation.

Consequence: Metro averages mask dramatic variation; downtown Class A and suburban Class C operate in different markets.

Correction: Always analyze rental metrics at the submarket level appropriate for your target property type.

Using asking rents instead of effective rents in financial projections.

Consequence: Concessions can reduce effective rent 5-15% below asking, overstating projected income.

Correction: Research concession levels and calculate effective rent for accurate income projections.

Test Your Knowledge

1.For Rental Analysis Exercises, which metric combination best indicates rental market health?

2.How should rental market analysis inform investment underwriting?

3.What is the most important trend to monitor in an active rental market?

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