Fair market rents in Canada help you climb the investment property ladder the easiest way. It helps you to maximize rental income while minimizing the vacancy of your investment property. At Nicro Realty, our experts calculate the accurate FMR with the help of a market rent appraisal report. Most landlords fail to make a profit because they don’t know how much to charge their tenants and fail to get a market rent appraisal.
They usually end up either charging too high or too low to make a profit. While both methods are wrong, the rent should be high enough to cover regular operational expenses and make a profit. Generally, market rent is calculated on a per square foot basis, in net or gross terms, and charged monthly.
For commercial properties, market rent is typically calculated yearly per square foot. For residential properties, market rent is calculated in dollars every month. Our market rent appraiser has a firm handle on the dynamics affecting market rent and will perform extensive market research for the fair market rent appraisal report so that you get to know the right fair market rents in Canada and make a profit off of your properties.
What is Fair Market Rent?
Fair Market Rent (FMR) is the rent that tenants are currently willing to pay in a particular neighbourhood for similar rental spaces. Hire our market rent appraisers to compare similar rental properties reports so that you can reasonably charge the maximum possible rent.
Fair market rent is different from current rent in that FMR is based on the analysis in our market rent appraisal. Current rent is what the existing tenant is currently paying and may be above or below Fair Market Rent.
Suppose, a residential property’s current rent is $1000 per month, but due to rising demand for space in that neighbourhood and a lack of available supply, Fair Market Rent has increased to $2000 per month.
It is therefore in the landlord’s best interest to increase the rent, if possible, and obtain an extra $1,000 per month which makes the market rent appraisal well worth the cost.
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Factors that affect the fair market rent appraisal
These factors decide how lucrative the property will be in the market for renters.
- Type of property: industrial; office; retail; or land
- Location of the property to be rented
- Property subtype- apartment, duplex, penthouse, single-family space, and multi-family property
- Property size- square footage
- Number of bedrooms and bathrooms
- Condition of property
- Amenities like gym, pool, parking space, large yard, and air-conditioning
- Essential utilities like electricity, heater, gas, and water
- Age of the property
How do we calculate fair market rent (FMR)?
Our experts try to get a localized view by being in tune with the local marketplace and knowing how local landlords are charging their tenants for similar comparable rental properties in that particular area. It is also helpful to know what tenants are willing to pay. We also research rents of similar rental properties in that similar area and reconcile any differences between the comparable property and the subject property.
When we are doing a market rent appraisal report, we take into account the details like property type, property size, location of the property, condition, etc. The more accurate the fair market rent will be, the more comparable the rent comps are to the subject property.
If comparables are occupied, then the appropriate rents are close to FMR. The occupancy rate helps us to know if the rental rate is just about right, lower, or higher than fair market rent.
If the investment property has unique features, it is justifiable to have a higher rent than FMR. Local vacant properties help us to know if the rent prices are too high.
Why do we Determine Fair Market Rent (FMR)?
Before You List Vacant Rental Property
By basing the rental rate on fair market rents in Canada, a successful landlord balances maximizing rental income and keeping the investment property occupied by tenants for a longer period.
If you ask for the right rental rate, you will earn a good rental income and find reliable tenants quicker who will stay for longer terms.
If you charge too much higher than FMR, then your property will remain vacant for longer, forcing you to absorb larger portions of the operating expenses such as the mortgage, taxes and other expenses.
While Adjusting Rent
The value of any property varies from time to time. If you are a landlord, analyze the FMR and increase or decrease the rental rate to higher occupancy rates and rental income. If the rental value increases in that area, discuss with the tenant to adjust rent based on FMR or set the appropriate rent in between tenants.
While Choosing a Property
FMR helps you to calculate the investment return and potential cash flow. If the FMR is lower than operational costs, it’s not worth the investment.
While Negotiating a Lease Renewal
when a tenancy is up for renewal, this is the time to obtain a market rent appraisal. Many leases stipulate that this work must be performed by an accredited appraiser.
Completing the market rent appraisal early in the process helps expedite the renewal and educates both parties about the current state of the market.
Wrapping up
Fair market rent appraisals are indispensable in Canada. The accurate fair market rent can help you figure out the right rental rate so you can maximize your rental income and get a higher return on your investment property.
At Nicro Realty Corp., we complete market rent appraisal reports in a researched, well-informed and calculated way. To hire a market rent appraiser, contact us today.
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