How a Data Scientist Analyzes Rent to Reduce Vacancy and Protect Returns | Ep 147

Welcome to the Furlo Capital Real Estate Podcast, where we dive into the intricacies of passive real estate investing. And our mission is to equip people to invest wisely in both property and people so that together we can build wealth while improving housing. I'm James and not with me right now is my wife. And that is because I'm giving her a break. We've been going for a lot of weeks in a row and she just she needed a break.

So for a little bit here, you're gonna get some solo episodes.

It's just me just talking about things going on

With the business and some concepts.

So

same stuff, just

slightly different format.

I did

because it was just me, I

made some slides.

So

if you're just listening, there are some visuals, but don't worry about it.

I will try

to say everything verbally so you won't miss out.

But we're gonna try this.

And today

I want to talk about

rental analyses.

Yes, the big question on most owners' minds is

how much can I get

for rent.

And this is a huge question.

I mean, it's not the engine that drives everything, but like it's pretty darn close.

I know when I do underwriting, that's

the top slot is the rent, right?

Because everything flows from there.

Because if you can't get the right amount of rent, nothing else matters.

And so

Uh

so it's a really important question

and you want to make sure that you get it right.

And that's for a couple of reasons.

The first

one

is, well

It's it's both sides of the table, right?

A, you don't want to be leaving money on the table.

So if you're too low, yeah, you're gonna get it rented quick.

Awesome, you'll have low vacancy, which

is honestly

mostly

most of the time the goal.

But

You don't also

but

you could be losing out on hundreds, if not thousands of dollars a year on your investment.

And then there's the other side, right?

If you do it too high, it's going to sit vacant for a very long time.

And then you will actually lose out on hundreds and thousands of dollars.

as well.

So

the goal is to figure out right where that market is

and to

to put it like you know

right in there.

And there's a lot of ways to do it

of

various degrees of um

of sophistication behind it, which is totally cool.

And honestly, depending on the market, you don't have to be super sophisticated about it.

I, however, am a former data scientist.

I used to work for Hewlett-Packard.

And my job at the time was to predict how much money HP would make selling ink.

Super fun job.

Lots of spreadsheets.

A lot of data analysis in there

there as well.

And so I have brought that to my process as well.

And I've been slowly evolving it over the years.

And just recently

I did probably my biggest update.

to it

and honestly part of it is that AI has enabled me to very now

not easily, but yeah, I guess

has enabled me

a non-techie kind of guy.

to

pull from a whole bunch of data sources that I normally wouldn't have

been able to pull from

in order to come up with uh

with

with numbers that I think are uh

Um

which are good.

And and all

that to say, um, this is how I do it.

And um

the

because I was able to build the tools and do it, it's it's pretty easy for me to do it.

And so there's not a lot of extra heavy

a burden to add the extra data, even though we might only be talking about one or two

percent changes.

But I also recognize that over a decade of having a property, that can make a big difference.

So

what I want to do is

dive in and show you uh this report.

Now this isn't the the actual report itself because that's just a PDF that I send out to

owners.

So what I've done is I've broken it down into the different parts of it and

And we'll kind of walk you through what it is that I'm looking at and why it matters.

So

in this particular one, I am talking about

a $50

decision.

and

why

we

would like lower something by $50

on purpose.

Alright, so

we're gonna dive into it.

So

again, the question that owners will typically ask me is: what's the highest rent that we can get?

Which again is a totally reasonable number to

or

question to ask.

And

And

what really

matters

in addition to that

is

how

many days is it going to be vacant?

Who is applying towards this unit?

And also kind of when does the lease end?

And

essentially we're talking about market seasonality and timing for that.

Um, because

all of those, all of those matter, right?

And so

what you don't want to have happen

is

as an owner, you go around and maybe look at a bunch of online tools or even ask a bunch of property managers like myself and others, and you just go with, well, whatever the highest number is, I like that the most.

That

That's not

that's not necessarily the best.

So, like for example, uh

these three things are definitely problems.

You can have a ton of vacancy.

And I'm gonna share a story near the end of a person where this is exactly what happened to him.

He did not listen to my recommendation.

And it costs him thousands of dollars.

The second one is who applies.

So there's something that inter

there's something interesting that happens

when

there's

it's an interesting curve

where if you've got a really nice home,

And you

price at top of market, you're going to get people who

are looking for those nicer homes who are going to apply.

And you're kind of gonna get out of the

lower end of the market in terms of tenant quality.

But

there comes a point where if you are priced higher than what the rental is worth, here's the crazy thing.

You will get people who apply, but it's only going to be people who

people

who don't either don't qualify or

they have to do things in order to make it work.

Like for example, you'll get

like

five unrelated people in a non-college

town

who will try to move into the house together because they're trying to make the numbers work and they all barely qualify.

And you don't necessarily want that situation either.

And yes, you get the higher rent, but now you've got just extra wear and tear.

And my experience has been there's just some other issues that tend to come along with that.

And so um

you want to

You want to get that in.

You want to make

you want to factor that in.

And then again, when the lease ends, it matters.

Just a small example here on Corballas.

If you're trying to rent a place in October or November, it's very different than trying to rent in August or September because of school.

Because once school starts, people for the most part are pretty settled.

And

my other

experiences

that college kids don't really think about it.

I mean, some of them are super on top of it.

And we actually have people who are already applying

for next year, which

Awesome, you're the kind of person I want to hire and rent to.

But then you have others who it's like, oh, I gotta move in two weeks.

I gotta find a place.

And that is probably the majority of people, which

I think it's kind of funny.

Um, but it's just true.

And so

when

you are trying to rent it out, that matters.

And the composition of the house and and all of those things.

So

when I do the report, what I want to do first is I want to give the answer, right?

Because at the end of the day, as an owner, you're like, dude, just what

What's the number?

That's all I care about.

It's funny.

Um, we

I was part of a startup where we did um

we were looking at the the condition of homes and we did some experiments where we ran where we did some

I would say like some modernized inspection reports.

It's kind of how I would describe it.

And what was really interesting was

we would get someone who would get this inspection.

I mean, and we spent some time.

It like it looked nice.

And that was part of what we were going for.

And they would read the first page very carefully.

And then they would flip the page and they would skim

the second page.

And then they would get to the third page.

briefly look at it and then just like slowly start quickly flipping through you know the other 25

pages that were in this report.

And like

we spent a lot of time on this report.

And they would kind of they would close it.

And like and this happened more than once.

They would get done and say, all right, bottom line it for me.

Like, where are we at?

What's the

what's the condition of this house?

That was all that they cared about

was the bottom line.

And so we ended up doing some things.

To just like

to get to that.

And we actually actually got totally got rid of doing the reports because we're like, dude, people don't read these.

It's fine.

Like, let's just bottom line it.

So

what I do with my reports is the answer comes first.

And so this is what the top of my report will look like, where I'm like, look, here's the rent.

Here's what I recommend doing.

Here's the market range.

And then here's how long I think it'll take you to lease it up.

And then I give some extra information about

what the market

you know, where it falls within the market.

And

I tend

to be conservative.

And so I don't necessarily try to go for

straight middle of the market.

I go a little bit lower of that, depending on the house, and there are other factors that will play into it.

But as a general rule, that's what I do.

And I just, this is an example property of one that I've run recently.

And so that's

That's what all these numbers represent.

But uh but that's how I will look at it

because vacancies are crazy

expensive.

I don't think owners fully appreciate how expensive a vacancy

can see

actually is.

And so uh so that's the the first number

that

that I will give.

The next piece of it are comps.

These are similar rentals that were either listed or rented

And we compare those.

And I mean, I grab however many I can.

My report will tend to top out at 15 because that's just how much space I have on the page.

And

and honestly, after 15, you as an owner, you don't care.

Like you're just trying to get a sense for where

where it is.

And so we will actually show the actual numbers, not just

not just a chart here.

And try to show you like, yeah, we're landing in the midpoint here.

That's kind of the idea.

And we'll give some

Some general stats about the other houses.

How far are they from you?

What's their square footage?

What's the bed bath?

Um, you know, that kind of thing to try to help you understand, yeah, we're not just making this up in a vacuum.

We're actually looking at comps

And that's where a lot of the tools that I've now built can grab from all over the place.

This recent one that I ran here, I had 29 comps that I was looking at and doing math on.

um in order to look at it.

And

um yeah, and so there were uh yeah it says there were 27 that were nearby

and then there were two that were cut because they were just outliers

and um

That's 29.

Yeah.

And so uh

so

that's

that's the next part of the report because we want to kind of show you like here's how

we got to that particular number.

Easy peasy, right?

And

um

and so

from that we can show, hey, here was

some that are like really good evidence for how we got to these numbers.

And we'll show three specific examples.

what

they're actually done, how the numbers worked out, and you know, and it also kind of gives you a range for what we're talking about.

In this particular case, it's a $400

a month range that you can kind of play in.

And I get it.

Like you can't necessarily

Like

condition, layout, all that stuff matters.

Timing also matters a lot, like we've talked about.

But um, but that's the first part of it.

Uh

the other thing that we'll look at is the neighborhood and the location itself.

And this is super cool.

Um

I found some cool data sources for it and and I really like it.

And on the report itself, I've got like

a cool little map that shows where everything is.

But essentially, what

people also care about, like

what do they talk about in real estate?

It's location, location, location.

Right.

That's what matters.

And so we look at that.

And the question isn't just like where is it in the city?

Relative to the big things, like

for Corballis, it might be OSU.

For Albany, it could be the hospital.

or the mall, I guess, but we care about all those little things.

So we will look at different shops, different food places.

Uh

we'll

we care about schools.

We don't

we don't screen or advertise those things.

when

looking for people, but

people aren't dumb.

Like they get it.

They know, oh, this is close to a school.

I have kids.

And so you

as

an owner, you'll care about that location for

stuff.

stuff and and that will influence the

the price.

So in this particular case, where it's located, 67%

of the households rent.

So it is definitely a renter area.

The medium age, decently young, 27.

It's mostly because

hell rent.

We're pretty close to OSU.

And um

we'll also look at some crime data

as well, because

I think that matters.

And

so

Um

so we'll look at those kind of things and try to spell out like here's who we think the natural tenant is.

Again, we don't screen for them.

We don't try to

um

Uh what am I trying to say?

We don't try to target them through the ads.

Uh

we will do general keywords.

So we'll talk about the house features and we will talk about where it's

Located where things that are relatively near it.

But we're not going to say things like

great for families

or Oregon State staff.

Like we don't do that.

But again, they will kind of self-select.

And what we're trying to, what I'm trying to do is give the owners an idea of like, here's

here's who I'm pretty sure is the person who's gonna try to rent.

No guarantee, but that's kind of

um

where we're headed with that.

So that's the

that's the second layer

of

um

of looking at

it.

The next layer is the market itself, right?

Like this thing doesn't live in in a bubble.

It's not isolated.

There are other

There are other properties out there.

And it's not just the price that that we care about.

There's like what's the movement?

How's the market?

You know, what's um

what's happening with other places?

Like, for example

For this particular one, man, two years ago, it was such a hot market.

It was crazy.

You did not have to be very good at marketing.

or

like

nurturing leads and tenants.

Like you could just put a property out there

and

man, if you didn't have 10 applications within two days, like you were clearly overpriced.

Like it was super obvious.

It is now different.

It is now gone from about five days up to 29 days, about a month.

Now

some of that is

that rents have been flat to declining.

And most owners, they keep thinking, no, I want to increase it.

And so they will stubbornly keep the Brent high, even though what they should do is lower it.

And that is part of what is causing this to

go up.

And there has been a lot more building, at least in our area, that has gone up

on

that

is now just

there's just more vacancy.

We have more spots.

People have more places to choose from.

And

so

um

So it's gone up.

And and again, we'll log

we'll show you like, hey, here's here's your competition.

Here's how many other active listings are out there.

And um and we try to give uh and we give a vacancy rate as for that as well.

It's funny for Corvallis.

I would say that it is balanced

starting to lean more

renter

for sure.

It's felt that way.

And

um

So you can definitely get it rented and if your price is right, you will get a lot of applications, but if you're too high, you won't get any, which is kind of where like like yeah, it's mostly balanced, but it's definitely leaning renter.

Um

for sure.

Chuckin' my notes here.

So

um

so yeah.

So we'll look at the

so we take a look at the market and we include a lot of those stats and things in the report.

And we'll also show

Just other bedrooms and sizes just to kind of give you a feel again for that overall market, not just for your little slice of the pie.

Because I think context matters.

for

your particular property, especially if you have one that's kind of a bigger size one where there aren't a lot of comps and information, gleaning from the neighborhood

or from the

general market

is

is uh super

important.

And

valuable.

And then um, and so like I said, we'll we'll look at the individual ones.

So here's an example of a three-bedroom rent that you can see it's kind of

it's flat, but not necessarily falling.

either.

And so um and so we'll show those those trends um

for

for each individual rent size.

That's what we'll do.

Uh

layer four.

Um

this one's cool.

I am such a nerd

and I recognize that and I am okay with that and I embrace that about myself.

Um, but I like to include macroeconomic

um

factors in there as well.

Though not directly related to the rent, it definitely has an influence.

And so we include things like the Oregon payrolls.

Are those going up or going down?

Similarly related is the unemployment rate or wage growth, right?

That's super important.

We care about the mortgage rate, not just for you as an owner thinking about refinancing.

But that influences how many people are going to be like, you know what?

I'm just going to keep on renting.

Or if rates are dropping,

like, yeah, now's the time.

I'm going to go get it.

So it kind of gives um gives an idea.

And then we look at the CPI, right?

Because

A, there is a limit that Oregon has that is based on that CPI number.

So like for example, next year the cap

is at 10%, which is honestly right where

Like

it's

it's right where it should be given their math.

And

honestly, like rents are not gonna go up 10%

unless you're way under market.

But it kind of gives you an idea for like

where are we in that spectrum of you know what direction are things

moving on there.

And

um

and I think it's just it's just helpful to

to see

what

um

again

it's it's not necessarily

I'm gonna say it

's

This doesn't drive rents, but it will kind of bracket

uh, you know, how much flexibility and um where we're at in the market.

market.

And so

in this particular case, it's pretty neutral in our market.

And so that's where I have explode flat

to single level, single

digit

rent growth.

I it's been

and I could see single digit up or down, but flat has been um really the way to do it.

Honestly, doing rent increases for existing tenants

the last

year and a half has been pretty easy

because

we look at the data and go, yep, it's about the same.

Done.

No need to send out letters or whatever

um

to people or to go through and make sure we're hitting the right numbers and track it all because we're just not increasing rents right now.

So it's been pretty easy.

That's not going to last forever.

And so we want to pay attention to these things.

And a lot of these macro things can

also be

um

How do

I say it?

Uh

they

could be potentially leading indicators to what's happening in the market.

And

um

Yeah, and so uh those are some of the stats that we'll look at just from a macro standpoint.

Again, they're nice to nose

, just kind of gives you that broader context.

And that's honestly a lot of

As a data scientist, that's what we're looking for.

Yeah, it's nice if you got a ton of data and we can map it out and do whatever.

But

part of

a big part of what we do is we're we're trying to take into account that entire picture of what's going on.

on and just try to be um open and up front with the owner.

And if I'm honest, it's also me trying to say, hey, uh

believe me when I say this is what it can rent for.

Because

if it's not the number that they want, they, you know, can get upset about it.

And so um

by adding a bunch of this uh

this

um

the foundation, the data behind it.

It's like, look, like here's how

this is how this is supported.

I'm not just making it up.

I'm not trying to make my life easy by just making it super easy to rent.

Because honestly, my income is also dependent on

Trying to get the maximum rent.

So our goals are aligned.

So

also on that macro piece, um, in this particular case, we will share.

Hey, here are the tailwinds.

Here's the things that are helping it out.

And then we'll also share the headwinds.

Here's the things that are hurting it.

And so

the goal

isn't just to drop a bunch of data on the owner and go, good

luck, make of it what you will.

It's to also do some in

the interpretation for it and say here's the implications behind it.

And so we

we provide that

um

in

our in our report.

The other thing that we'll try to do

is provide

a pricing plan.

And so this describes

in this particular

example: hey, we're gonna go out this.

This is what we're gonna get.

We'll see where it goes.

We're going to pay attention to the market feedback, which is going to come in the form of inquiries, applications, that kind of stuff.

And depending on what we find,

we're going to make an adjustment.

And

And

two weeks, two to one weeks is a pretty good adjustment, kind of depending.

If we get crickets in the first six days, we'll make a move.

We're not gonna wait.

If we're getting some feedback, all right, cool.

We're gonna we're gonna hang on for a couple of weeks.

To see what happens.

But if we're not getting it, if we're not making that progress yet, uh, then yeah, we gotta make a move.

And um, and so what we try to do is say, hey, here's our plan, here's what we're thinking, to try to wrap your head around.

um

what

uh you know

what's up ahead.

And so when I do comachi in a couple weeks I'm like, hey, it's still not rented.

It's 25

575 now.

You're like, okay, yep, I get it.

I've been prepared for that.

And so um I found a lot of

a lot of what we do is just setting expectations for owners and helping them understand the context behind the decision.

that we're making.

And it just overall helps

them

process and make decisions instead of being surprised by, wait, you lowered the rent?

What's going on?

I was expecting to get 2650.

What's up?

I don't want that.

I I

personally don't want that, and I know my owners don't know either.

And so we tried to tell like, here's the plan for how we're gonna go out

and

and get her done.

So I want to share a story

of where

uh

I had an owner, he had a single-family home.

He

he moved out of town.

This was it was kind of an accidental rent landlord type of situation.

And here's what was really interesting about this

is he

at one time had it rented out at $2,900.

When I took over management of it, that's what it was rented at.

And it was one of those where I took over management because the tenant had given a 30 days notice and was moving out.

And so it was like

perfect time to transition.

And

And I did the rent analysis and was like, dude, I don't

I don't know how you came out to $2,900.

Like the market is telling you $23.

Like, which is $600

a month

is a massive difference.

I mean, it's it's huge.

And and it was kind of the situation that I described earlier where it was someone who they made it work.

They had

some housing stuff that was going on they had some other help there was there were things

and so they were able to move in

honestly

it was priced too high

and for this area

rents had declined

But

he liked getting the $2,900 a month, which I totally get.

And so he came out

like, nope, do the $29.

That's what we're gonna try to do.

I was like

Okay.

And so

um

so that was what we did.

We went out and we did it.

And I will admit I probably did not do a good enough job of making the case, which is part of the reason why I keep

trying to make this better and improve it.

And so

uh

we put it out there

and

we waited a few weeks.

And we got zero calls, so then we lowered it to 28.

We waited a few more weeks, got

no calls, so we lowered it again.

And I mean, we just slowly but surely marched this thing down to.

$2,300.

And it was when we hit that point, all of a sudden we got calls.

And we had people applying.

We had a couple

other people try to apply.

At a higher like at like

it was like at twenty-five.

But again, it was one of those weird like they were trying to make it work.

It was a situation where it was like five guys who were all kind of related, but not really.

I don't know.

It was

It was complicated.

They didn't speak English, which made things more difficult, but you know, we were trying to make it work and using Google Translate and all this stuff.

And

um, and it just it ultimately just didn't work.

And so um, so we couldn't write

to them.

And so eventually when we hit the price point that my original research had said, yep, we got calls, people applied, they moved in, we're ready to rock.

The net of it was that it was 120 days.

of

vacancy.

I mean, we, it was,

it was so long.

It was four months.

I felt so bad for him, but I was also like, dude, what are we doing?

That costs him to go from 29 to 23.

When he could have done 23

in that

in within those four months, that was nine

grand

because he wasn't collecting the $2,300

for those four months.

That's a huge cost.

And and I mean I get

trying to go out for 600 or for 2900 to get the 600 more.

I totally get it.

And I I was supportive of that, but I was like, but we gotta react fast if we're not getting any feedback.

And

we just didn't react fast enough.

And so um so these are real decisions that we're trying to make and and the vacancy is a massive cost.

So anything you can do to ride out the gate, get the appropriate amount of interest so that you can get it filled.

That's the goal.

And that's why I go

really

deep onto

all of the

analytics and data.

And I care about

those 1 to 2%

differences because it can make a difference.

So, when you think about this place, this was the math for

this particular one.

Yes, there was an average of the market, and my recommendation was to actually take it down just a little bit.

$50

a month, which

I get it, right?

That's $600

per year

that of rent that you're no longer getting.

Totally get it.

But here's the math.

One empty week costs $618, right?

That's the

what you could have gotten divided by the 30 days

times seven.

And so

it's one of those where

the break-even

on this is

that

it can let you

lease

if you think you can lease it seven days faster.

You should do it.

And that's the kind of math that we try to walk our owners through.

Look, I get it.

You're not getting the absolute

absolute maximum, but you can lease it faster.

And at the end of the day, like that's actually worth more.

Now you can make the argument, okay, well what about the next year?

Like

now you're just under.

Okay, but if you are generally under, that's where you do the market analysis a year later, and that's where you can talk about increasing it.

Obviously don't want to push her tenant out

because again, vacancy and the turnover costs are really expensive.

And so, and I just think there's something to be said about not trying to be creepy and get the absolute maximum dollars out of there.

Again, we don't want to leave too much on the table, but like it's okay to leave some on the table.

Totally cool.

So

here are six questions that you can ask your property manager or if you're interviewing or you know

you know, trying to find one.

Here's what you can ask.

Uh number one, how many comps are they looking at and how close are they?

Like that matters.

Now there's some that have ginormous portfolios and they're able to do an internal comp.

Awesome.

Cool.

Like

that works.

You could also ask, what are the days on market doing right now?

This matters because it needs to set your expectations for

how aggressive you're going to get on the pricing and how much you need to wait.

Yeah, whatever.

Uh number five, uh, what lease

end date are we targeting?

So again, that matters for

um

when you're gonna try to lease up again, especially in highly seasonal markets like Corballis.

Less important for places like Albany and Lebanon, though it definitely still matters.

Um I guess number two, because I went out of order.

Uh

which

comps were excluded and why?

Like mine.

I had two that we threw out because they were just the numbers didn't even make any sense.

Like, I don't, like, there's no context for this.

There's something else going on here that we're just not aware of.

Goodbye.

And then you should ask them, what is the tr

the price

drop plan?

And

when do you execute that?

Because you don't want to just think like, yep, we got the price, we're gonna nail it.

We're all good.

And then you get a weekend and go, uh, okay, now what?

Like you want to kind of have that plan in place.

And then finally

What does one empty week cost me?

I think that's an important question to answer, to give you an idea for where is that break-even rate?

And it could make sense to lower it if it makes you more competitive.

So

That's what the ask.

Again, rent it's not it's a plan.

It's not a number.

And

so you want to know what the number is behind that.

And so

um so that's what we do.

And that's

as a data scientist, that's how I look into it.

And I try, I mean I love the numbers, just

give me a big spreadsheet,

but I try to make with my reports approachable for other people while also showing like, hey, we didn't just

pull it out of the air

or just surf Craigslist in Facebook Marketplace and kind of get

like, yeah, okay, it seems like this.

Or

what's the other one?

Go to the Zillow Market page and go, that's the number.

I mean

Those systems are also sophisticated

and

and like

it might not be wrong, but you gotta somehow validate it and know that.

And so that's

um that's the process.

that we try to go through to do that.

So

that's what we got.

Super fun.

I love doing it.

If you are interested in doing a property analysis and having us take a look at it.

Would love to do it.

I do focus in my area only.

But um you know if you're in the Corvallis, Albany, Lebanon, Lomothish

area, I'm happy to take

look at that

and if you're just interested in learning more about who we are

as a property management company

or just investing in general because we

go through that same exercise when investing in places

with

people.

You can check us out at Furlo.com.

So with that, thanks for listening.

Have a great day.