Rent Comps Decide Your Deal
Before you make a seller-financed offer, you need to know two rents: what the property generates today and what it should generate at market. The gap between those numbers is your forced appreciation opportunity. Get the comp set wrong and your underwriting falls apart.
The Four Constraints That Make A Real Comp
A usable rent comp matches the subject property on four dimensions:
- **Geography.** Same neighborhood ideally, never more than 1 mile away in urban markets. Up to 3 to 4 miles in suburban or rural markets where similar product is sparse.
- **Property type.** Compare 4-unit buildings to 4-unit buildings. Comparing a duplex to a 12-unit gets you bad data because operating economics differ.
- **Unit size.** Bedroom count and approximate square footage. A 700 sqft 2-bedroom rents very differently from a 1,100 sqft 2-bedroom.
- **Condition.** Recently renovated unit vs. original 1970s finishes. This is where most beginners fail. They pull rents from a renovated building and apply that number to a tired property.
The Four-Mile Rule
Inside major metros, four miles is too far. A property in River North Chicago and a property in West Loop Chicago are 2.5 miles apart and rent like different cities. Use a 0.5 to 1 mile radius for urban markets.
In suburban and small-market deals, four miles is often the practical limit. Below that you may not have enough data points.
Where To Source Comps
Best sources:
- Zillow Rental Manager and Trulia for active and recently rented listings
- Apartment List for stabilized multifamily 50-plus units
- Rentometer (paid) for averages by zip code with confidence intervals
- Local property management company rent rolls (call and ask)
Less reliable:
- Craigslist (often outdated or asking, not effective rent)
- Facebook Marketplace (no income verification)
- Newspaper classifieds (mostly gone, but still skewed)
Best technique: Pull 8 to 12 listings from Zillow within a half mile, filter to your unit type, then call the leasing agents on three of them and ask point-blank: "Are you actually getting that rent, or is there a concession?"
A leasing agent confirming "we are getting it, no concessions" is gold. A "well, we offered the first month free" tells you the effective rent is 1/12 below asking.
Adjusting For Differences
When comps are not exact matches, adjust:
- Each renovated unit (newer kitchen, in-unit laundry) commands a 10 to 15 percent premium. Subtract that to compare to your tired property.
- Each parking space is worth $50 to $150 per month depending on market.
- Each appliance update (washer-dryer in unit, dishwasher, stainless) is $25 to $50 per month.
- Pet-friendly buildings command 5 to 8 percent more.
The 10 Percent Rule
If your comp set shows wide dispersion (best comp $300 above worst), use the median, not the average. The average gets dragged up by outliers.
A reasonable underwrite assumes your subject rents at the 40th to 60th percentile of the comp set after stabilization. Do not assume you will be at the top of the market. Many investors lose money by assuming their unit will be the best in the neighborhood when in practice it lands in the middle.
How Rent Comps Drive Your Seller Financing Offer
The market rent feeds your stabilized NOI. The stabilized NOI feeds your refi value at a market cap rate. That value sets your maximum acquisition price.
If your rent comp is off by 10 percent, your refi value is off by 10 percent. That is the difference between a successful BRRRR cycle and being stuck holding a property you cannot refi out of.
Spend the extra hour on the comp set. The number you anchor to here drives every downstream decision.
Common Mistakes To Avoid
- Pulling comps from a different submarket because nothing is close enough. Better to take fewer, tighter comps than to widen the radius.
- Trusting Zestimate rent estimates. Zillow's algorithm misses condition and current market activity.
- Using listings without verifying they actually leased. An asking rent of $1,500 that sat for 90 days is not a comp.
- Ignoring concession patterns. Free months and gift cards distort effective rents in soft markets.
- Stabilizing rents without subtracting natural vacancy. Effective gross is what matters, not 100 percent occupancy assumed rent.