Setting rent for a new apartment building
Hi All,

I'm looking at purchasing a Multi Family building in Washington DC and am wondering how the rental rates are determined. is there a formula used or another metric? thank you in advance for the help!
[{"id": "fg0kwpy", "text": "Just charge the most someone is willing to pay.", "replies": [{"id": "fg0ox9j", "text": "This. And umm make sure your cash flows be positive?", "replies": [{"id": "fg2t7bs", "text": "Step 3: profit", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fg0l72f", "text": "Market comps", "replies": [], "depth": 1}, {"id": "fg0lof5", "text": "Check rent control ordinances and make sure they don\u2019t have \u201crent suggestions\u201d", "replies": [{"id": "fg0p0em", "text": "havent heard of rent control for commercial spaces ...does this actually exist? how anti american", "replies": [{"id": "fg0sbhv", "text": "If NY passes their next masterpiece of a bill, it\u2019ll be real in NY", "replies": [{"id": "fg1mqer", "text": "op edited post to clarify its apt not commercial...", "replies": [], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fg0oq4w", "text": "e=mc^2", "replies": [], "depth": 1}, {"id": "fg0px81", "text": "General rule of thumb: Take your average rent annually and divide by average household income in a 5 mile radius. Should be under 25-30% depending on location. Places like San Francisco or New York don't necessarily follow that rule though.", "replies": [], "depth": 1}, {"id": "fg0q5qd", "text": "Is your bldg built before 1986? If so rent control likely applies. If you put in a subsidized tenant then it will be at the rental rate prescribed by dcha and will ignore any rent control level. If its 4 units or under and u don\u2019t own other rental units in the city, you qualify for a different rent control exemption that you will need to file. If that is the case you would pull rental comps for similar areas. If you are not exempt, you can get an automatic 10% increase over prior charged rents for each unit or you can submit comps to DHCD to get up to 30% above the previous rents.", "replies": [], "depth": 1}, {"id": "fg0qha0", "text": "Don\u2019t want to be a downer but if you\u2019re asking this question please make sure you are well-versed (enough) in property operations, management, financing and the rest of the nitty gritty of ownership.  Many an investor has lost money by forgetting to plan out multiple exit strategies, maintain enough reserves, forgetting about capital projects, etc.  It\u2019s not terribly hard but make sure you know what you are getting into and paying the right price for what you\u2019re getting.", "replies": [{"id": "fg0ru17", "text": "my main problem right now is finding deals that pencil. most deals in the DC market seem to be on market listings with what I believe is outrageous pricing ( am I wrong?) such as 20 2br units for 8 million (I'm modeling it at 6 million). with rents for those units going between 2500 - 3000 a month. I'm currently operating with a 6% annual interest rate on debt &amp;  a 90/10 split investor/sponsor equity. giving the investor an 8% pref. we are hoping to buy outdated buildings and add value to them to increase rents then refi out. our exit strategy is to sell the improved and stabilized asset at the 5-year mark and cash out investors at the refi.\n\nam I missing something or doing something wrong or is it the market pricing? on the deal I mentioned above, the total monthly income is 10k giving the company 1k and the investor 9k.", "replies": [{"id": "fg17766", "text": "You\u2019re not alone in having a tough time finding good multis in major markets.  $6m for that income would make sense generally.  ~6cap on in place if they are 2700 avg, 5% vac and 45% exp ratio.  You will probably need to dig up off market deals.  There are some comps in the $280-300k/unit range in your general size range so it\u2019s not impossible.   Shop your competition as a renter to really get a feel for what the market can bear.", "replies": [], "depth": 3}, {"id": "fg49lgu", "text": "6% rate seems very high. How much leverage are you looking for? If its a core deal, you should be in the low 4's", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fg0ynrm", "text": "start with rentometer and then do comps", "replies": [], "depth": 1}, {"id": "fg1dtff", "text": "Pie R Square", "replies": [], "depth": 1}, {"id": "fg2teqe", "text": "CoStar, AXIO, and others are very useful here to determine what your potential rents could be. If you\u2019re adding value, are you remodeling, adding amenities, reducing OpEx? What is your strategy? What is the draw of this property? Can you increase NOI, hit your required returns and sell and a lower cap rate at disposition?\n\nHow are you modeling your proforma? Did you take into account property taxes? What are your revenue and expenses growth assumptions? What is your hold period? What is your investors required ror? What is your IRR on the project?\n\nMany more questions too...\n\nI need to learn way more and get out there and do my first deal.", "replies": [], "depth": 1}, {"id": "fgudahn", "text": "Check out zumbly or realtor and post it there. They offer best atlrenatives", "replies": [], "depth": 1}]