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You can’t forecast rent growth correctly without looking at and analyzing the rent comps. I want to show you how to leverage the data of HelloData to help with your proforma value-add analysis.

Multifamily Investment Scenario

We are analyzing a 332-unit property that we suspect is a great candidate for a renovations program. It was built in the 1970s, and unit interiors have fallen behind the recent trends.

The goal is to assess the comp set and determine a potential rent premium that reflects the upside of the investment while also being cognizant of the subject property’s limitations. This tutorial will highlight Tactica’s Value-Add Model for the proforma rent assumptions.

I will use HelloData’s real-time property information but keep the apartment complex names confidential. While technically, all this data is public information, the focus of this article is to show you how to maximize HelloData's features, which is possible to demonstrate without calling out actual properties.

Rent Roll Inputs

We have analyzed and inputted the current rent roll into the "Renovations" tab of Tactica's Value-Add Model and need to consider the renovation scope. We know there's an opportunity for a value-add, but we must look closer at the rent comps to determine the potential spend and rent premium.

The unit mix of the subject property consists of the following:

One BR/One BA: 120 units
Two BR/One BA: 130 units
Three BR/One BA: 82 units

Tactica's "renovation inputs" section highlighted where you'd enter the rent premium.

Rent Comp Research

Let's dive into the rent comps. Tactica is partnered with HelloData.ai, pioneers in using artificial intelligence to gather rent-comp data and insights. If you want to try out their platform, they offer a 7-day free trial.

HelloData: Commence a free 7-day trial banner with benefits and disclaimer.

I wrote a separate tutorial for using HelloData for multifamily development—creating a rent comp survey and populating the development proforma.

First, I will type in the subject property, and HelloData will auto-populate its name. Then, I will generate the aspirational "Value-Add" comps. I want to see comps equal to or better than the subject property, as we will strive to emulate these buildings.

HelloData "suggest comps -value-add" beta button.

Let’s start by looking at the One BR/One BA Units.

One BR/One BA Units

This property has a significant upside just by where it sits in the pecking order of effective rents for closed listing.

Bar chart of each comps 1BR market and effective rent PSF (subject property is purple).

The two bars for each comp represent market/effective rents per square foot (PSF).

It’s a good sign when the subject property ranks near last in effective rent PSF within the comp set. My general rule of thumb is determining if achieving a rent in the middle of the pack is feasible. I think it's too aggressive to solve for rent at the high water mark (Comp #6 = $2.32 PSF in the image above)

But maybe getting to $1.50 - $1.65 PSF is obtainable from the current $1.26 PSF level.

I first want to assess the highest-priced apartments in the comp set (Comp #6).

What do they have that our subject property doesn't?
What are they doing differently?
Can we add features to catch up?

Building Amenities

Comp #6 has a fitness center, parking garage, and a swimming pool.

Comp #6 has fitness center, garage, and pool while the subject does not.

All of which would be incredibly cost-prohibitive to add to the subject property.

Unit Amenities

Most of the unit amenities are better, too. Central AC wouldn't be feasible to replicate, nor would the large walk-in closets.

Comp #6 has central AC and walk-in closet while the subject does not.

We can upgrade cosmetic items like appliances, but there are some limitations, and this reinforces why targeting a $2.32 PSF one-bedroom rent is likely unobtainable.

Let's look at Comp #1, which falls one spot ahead of the subject property for its one-bedroom rent.

Bar chart of each comps 1BR market and effective rent PSF, emphasizing Comp #1 at $1.56 PSF

Comp #1 is getting $1.56, which is substantially more. Their bedrooms and bathrooms are rated lower than those of the subject property.

Comp #1 kitchen is rated a 2/10 and bathroom is rated 4/10. Subject respectfully is rated 4/10 and 6/10.

Although, Comp #1 does have amenities the subject property lacks, such as a fitness center, elevator, and parking garage.

Comp #1 has fitness center, elevator, and garage while the subject does not.

Not allowing pets may also limit prospective renters at the subject property.

However, unit amenities between the subject property and Comp #1 are similar.

Subject property has an in-unit washer and dryer why Comp #1 doesn't.

The subject property has an in-unit washer/dryer, which could help negate the lack of parking.

I'd consider conservatively underwriting at about $1.55 PSF, which is still 23% higher than the subject's current asking rent in line with Comp #1 and well below the comp set 90-day average of $1.88 PSF.

Average effective rent of all 1BR/1BA units over the past 90 days (active and closed listing) is $1.88 PSF.

Two BR/One BA Units

For Two BR/One BA units, I again want to avoid benchmarking off the "best" and "highest" comp in the set but settle with one that's more in the "middle" of the mix.

Bar chart of each comps 2BR market and effective rent PSF, emphasizing Comp #8 at $1.51 PSF.

Comp #8 asks $1.51 for their Two BR/One BA unit (net of concessions).

Like the subject, Comp #8 does not have a parking garage, although they have a fitness center and swimming pool. Their 2BR units have been renovated, and while the subject property cannot do much about central AC and walk-in closets, they can improve cosmetics to replicate the kitchens and bathrooms.

For the Two BR/One BA units, I'd solve for $1.50 PSF, which is a 20% increase over current asking-rent levels. This rent target falls slightly below the comp average of $1.57 PSF.

Average effective rent of all 2BR/1BA units over the past 90 days (active and closed listing) is $1.57 PSF.

Three BR/One BA Units

And finally, for Three BR/One BA Units, I'm looking at Comp #10.

Bar chart of each comps 3BR market and effective rent PSF, emphasizing Comp #10 at $1.43 PSF.

It's a "middle-of-the-road" comp with no building amenities, but still rents way more than the subject property. It does have a few unit amenities the subject lacks, including a dishwasher and walk-in closets. However, its bedroom, kitchen, and bathroom rankings align with the subject.

For the Three BR/One BA units, I'd solve for $1.40 PSF, which is our most aggressive assumption yet and a 34% increase over current asking-rent levels. This rent target falls slightly below the comp average of $1.52 PSF.

Average effective rent of all 3BR/1BA units over the past 90 days (active and closed listing) is $1.52 PSF.

Analyzing Individual Listings

Note: It's essential also to note the recent leasing trends at the individual unit level. I'm being fairly aggressive with the Three BR rent assumption, and it may be helpful to do some further digging.

For example, HelloData allows you to look at the actual listing history for individual units within the comp set. I'm looking at a Three BR/One BA unit for one of the "nicer" comps in the set.

Line chart showing the effective listed rent dropping from $1,900 to $1,617 over 3.5 months.

Their 950 SF unit took months to lease and saw nearly $300 in price cuts before leased.

I assume it leased at an effective rent of close to $1.70 PSF (its final listing date). This rent is much higher than our proforma assumption. Thankfully, none of the more modest Three BR/One BA units experienced so much leasing difficulty.

Line chart showing the listed market rent staying at $1,300 for one week before closing.

The cheaper three-bedroom units seem to lease faster (one week) with no pricing change, which is a good sign for the subject property’s three-bedroom units.

Proforma Rent Premiums

In summary, we will scheme a renovation plan to increase rents to:

One BR/One BA: $1.55 PSF
Two BR/One BA: $1.50 PSF
Three BR/One BA: $1.40 PSF

To get this into the model, I'll play with the rent premium for each unit type to back into the desired targeted rent PSF:

Premiums entered into Tactica's Value-Add Model: One BR - $225, Two BR - $220, Three BR - $415.

For now, I'm putting in a general per-unit CAPEX allocation of $15,000/unit, but this would need further vetting.

Summarizing Rent Premium Analysis

Using HelloData’s software, we can get real-time effective rent information in the submarket, assess the most appropriate rental comps, and determine what a reasonable rent premium could be at the property.

Start your free 7-day HelloData trial period. Use the promo code "TACTICA10" for 10% off your first 12 months.

Some other helpful features HelloData offers that weren’t highlighted in this tutorial include the following:

Map showing the vicinity of comps
Links to property web pages for deeper insight into amenities and finish levels
Expense benchmarks
“Suggested” rents feature

To do a property rent comp analysis, it can take hours:

Touring
Taking pictures
Ranking pictures
Scouring listing data online
Calling leasing agents for the latest rental data (which was usually wrong)
Cleaning and organizing this data to make tangible insights.

HelloData takes care of all the time-consuming tasks and gives you the comp data in one central location, making it seamless to transition to your proforma underwriting.