What Are "Prevailing Rents"?

What Are
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The term "prevailing rents," more commonly known as "fair market rents" or "market value rents," is important to know, whether you're a landlord or renter. They can be affected by several factors, especially location. Knowing an area's prevailing rents is useful if you're a landlord because they can help determine how much you can charge for an apartment. This is also helpful for renters, because they can help determine if you're being overcharged for an apartment (or getting a great bargain).

Definition and Calculation of Prevailing Rents

"Prevailing rents" refers to the range of rents for a particular kind of apartment for a particular area. For example, the prevailing rents for a one-bedroom apartment in the Boston downtown area typically range from $1,900 to $2,100 per month. To get a sense of the prevailing market rates in a location, research the kind of apartment that interests you (how many bedrooms? how much square footage?) in that location. Soon, you will get a sense of what the prevailing rents are.

What Affects Prevailing Rents?

Several factors affect prevailing rents. Location, for instance, is an important factor. Generally speaking, apartments in the downtown area of a major city are more expensive than those in a more isolated area. How an area is viewed by outsiders is also important. If an area is viewed as trendy or on the upswing, prevailing rents may be higher. If, however, its image is tarnished by crime or bad publicity, prevailing rents may be lower.

Usefulness for Landlords

It is important for landlords to be familiar with the prevailing rents in the areas surrounding their rental property. If the prevailing rents are lower than the property's monthly expenses, you will probably not be able to charge enough to cover those expenses. Thus, you will lose money each month, and you may want to consider more profitable alternatives to renting the property. If, however, the prevailing rents are higher than the property's monthly expenses, you may be able to profit each month.

Usefulness for Renters

Knowing an area's prevailing rents can be helpful for renters, too. It's always best to shop around, and determining prevailing rents can help you. Once you do, keep an eye out for properties that fall outside of these rates. If a property falls far below them, then there is probably something wrong with the property or its location. If a property's rent is far above prevailing rents, then you should expect something special enough from it (or its location) to warrant such a high price.