The real estate market is a great place to invest if you want to build your wealth and generate a reliable income.
Being a property owner isn't easy, and you need to have a good understanding of what you're doing if you want to get the most out of your investments. Understanding rental valuation is a key part of this. With the right rental appraisal techniques, you can maximize the value of your properties and get the best return on investment (ROI).
Let's go over some key property valuation tips so you can achieve your investment goals.
Sales Comparison
This is a common approach that involves property market analysis. You can look at comparable homes in the area that have recently sold and how much they sold for.
Ideally, you want to look at homes with similar:
- Number of bedrooms
- Features
- Sizes
- Bathrooms
- Kitchens
This can give you a good idea of what sort of price you could expect for your property.
Gross Rent Multiplier
For a simpler approach, you can work out how long it will take to pay off a property using the income it generates. The equation for this is:
Property price/gross rental income = gross rent multiplier
If you want some assistance calculating this, a local property manager can help you. They may also be able to offer other valuable advice and guidance.
Cost
The cost approach involves comparing the price of a home to how much it would cost to build that same home from scratch. Many investors will use this method and only invest in a property if it costs less than what it would to build it again.
There are two approaches here, with the first being looking at the cost to build the home with the same materials and fixtures. The other approach is the same but with updated materials and fixtures.
Income
The income method looks at the net operating income (NOI) to determine the cap rate:
NOI/property price = cap rate
A higher cap rate typically means a better ROI. Many small-scale investors favor this approach, particularly when they're looking for properties to generate a monthly income.
Capital Asset Pricing
This is one of the more complex approaches you can use. It shows the connection between your risk and expected return. It takes a range of factors into account, including:
- Condition
- Age
- Neighborhood
- Operating expenses
- Geographical location
- Current net cash flow
- Potential rental income
It's best to work with a property management company when using this approach to ensure it's done correctly. It can be difficult to do it yourself, but a professional will be able to help you get a more accurate valuation.
Assistance With Your Rental Valuation
You want to get the best ROI from any real estate investment you make, and rental valuation can help with this. A professional property manager can help you do this so you can maximize your profits.
PMI Mountain and Main is a full-service real estate asset management company operating throughout Ashville. Our experienced team can assist with rental valuation and any other aspect of property management.
PMI is the fastest-growing property management company in the US and we always work to produce the best results for our clients. Take a look at our property management page for more information.
