I just heard about a fascinating new web site, called Zilpy.com – it’s like Zillow for rentals. I don’t do rentals, but the rental rates are very important to me, because I need to tell my clients what a property would rent for. That’s the #1 question that needs an answer for an investor, so they can calculate how much the property would be worth to them.
For example, I have a listing at 262 Sunnyhills Drive, in Watsonville. I think it would make a fantastic rental for an investor. After perusing Craigslist.com and the Santa Cruz Sentinel On-Line classifieds (as I talked about in a previous blog entry), I figured it would rent for $1,250 or so per month. Let’s see what Zilpy says:
According to Zilpy, that place could be renting for $1,441 per month – cool. It should be noted that I had to tweak the info that Zilpy had for that property, by adjusting the number of bedrooms, bathrooms, and square footage. Curious, I went on to see what Zilpy figured I could rent another of my listings for, 140 Weeks Drive in Watsonville:
Zilp comes in at an even $1,200 a month for that place. That’s pretty suspicious, given that it’s a much nicer property than Sunnyhills – it’s got a 1-car attached garage, an extra bathroom, and about 20% more square footage, but according to Zilpy, it would rent for about 17% less money, even though it’s a superior property.
Given these surprising results, I had to ask myself – where does Zilpy get its data from? I couldn’t actually find out, but here is what their knowledgebase has to say on the subject:
Zilpy employs a comprehensive array of data sources, both online and offline, to gather the most complete rental market activity.
Spare me the details, please! Well, part of the problem may be that Zilpy is apparently using some kind of proximity factor in its algorithm, as well it should – but in the case of Weeks Drive, it comparing it to a couple of rentals in Adult Village, an “adult community” where at least one occupant must be 55 years old to live there, and the other occupant (if any) must be at least 45. That keeps a damper on home values in that area (which is kind of the idea), and it likewise has a depressive effect on rental prices, thus throwing off Zilpy’s estimate for home values.
Jut for grins, I put in another listing I have at 216B Green Meadow Drive, in Watsonville – also a condo. Here is what Zilpy says:
According to Zilpy, this unit (a three bedroom, 1.5 bathroom, 1 car attached garage) ought to be bringing in $1,737 per month.
As an investor, I’d take those numbers and do some back-of-the-envelope calculations. First thing I would do is take the HOA fee right off the rental amount. That’d help me with an apples-to-apples comparison. Here’s how it breaks down:
The bit of data I’m after here is in the last column, the GRM, or Gross Rent Multiplier. This is the number of years it would take to pay off the mortgage, assuming 0% interest, if the property were rented 100% of the time. At 16.11 years, 216B Green Meadow Drive takes the prize. Of course, the data is flawed – 140 Weeks Drive would rent for more than 262 Sunnyhills, etc.
Even though it is flawed, Zilpy.com is an interesting web site, and if you are considering doing some real estate investing, I encourage you to take it for a spin.