Suppose you're beginning to invest in rental properties or do not know how to calculate your rental value before renting your home. You'll be able to understand why it's essential to calculate the value of rental for your rental property and how you should make this assessment.
Also, you'll discover an investment calculator that will help you estimate the value of your rental property quicker and more efficiently.
What Is Rental Value?
The rent value is the amount of rent that tenants are willing to pay for the property that is comparable with other property types at a specific moment. Comparing similar investment properties can be justifiable if they have similar or near similar features.
When you calculate the rental value for your home, be careful not to place your house on the market at a price that it is too. The rent value is also described as a fair market value of what the property is valued at that moment in the period.
Why Is It Important to Estimate Rental Value?
If you are a real estate investor, it is essential to be aware of how to estimate the worth of your rental property. In addition, if you're going through divorce or separation, the estimated rental value will help you decide on what amount you'll pay for an alimony or child support payment.
There are many reasons you must be aware of how to calculate the value of rental income for the investment properties you own. It could be useful both in your professional and personal life.
When Should You Estimate Rental Value?
Firstly, calculate the rental value since the property value fluctuates constantly. Using this method, you can estimate your property's cash flow. In general, if a property is attractive, its rental value will also be high. Experienced investors know that beauty doesn't necessarily mean rental revenue is sufficient.
To calculate the rent estimate, you must understand how to do it. The estimated rental value of a property also depends on its surroundings as well as its location. Purchasing or renting a property, or remodeling it, should be done before you do this. Ideally, this should be done when tenants leave.
How to Estimate Rental Value in 6 Steps
Your understanding of rental values has increased. You can charge how much rent you want.
It is very important for both you and the tenants to negotiate the most reasonable price for your property. In order to estimate a property's worth, here are six steps to follow.
Step 1: Determine Your Investment Property's Market Value
A lot of investors go to the listing page to figure out how much their investments are worth. The CAPM examines the inherent risks when renting real property.
Income Approach
The income approach is how to estimate the rental value exclusively based on the revenue produced by the rental property. Subdividing the value of the property by its annual income would result in the multiplier of gross rental.
Cost Approach
The cost method is a method that suggests that the rent that a tenant must be paying for renting a home is similar to the amount it took to construct that identical property. The property's value should be equivalent to the value of the land plus the cost of building the structure, less depreciation.
Step 2: Use the 1% Rule
In real property, the rule of 1% is a method of evaluating an investment home against the revenue it generates. The process is known as rental comps.
What Are Rental Comps?
Rental comps are a way of comparing rental properties that have characteristics that are similar to each other within the same neighborhood or region.
Advantages and Disadvantages of Rental Comps
The benefit of renting comps is that they will always be helpful within the residential real estate business since people love to compare properties. Also, you can meet with investors from other companies who might be willing to help.
It is also possible to find rental comps online, using tools such as Craigslist and property rental calculator.
Step 4: Estimate Your One-Time and Recurring Expenses
After analyzing similar properties, the second step will be calculating the one-time and recurring costs. These expenses are typically the ones that are incurred when purchasing rental properties, while recurring costs are incurred even after the purchase of the property rental. Knowing the approximate one-time and ongoing costs is essential to determine the appropriate amount to charge tenants.
Some examples of one-time expenses are:
Escrow costs (Between 1 and 2 per cent of the value of the house)
Transfer taxes (1 per cent for homes that are less than $200,000, or 2% on those homes over $200,000)
Notary charges (Between $0.25 up to 20)
Title insurance (From just a couple of hundred dollars up to $2,000)
Appraisal fees (Around $300-$400 for a home that is a single-family residence)
Recording fees (An Average of $125 at the closing)
Cost of title (Around 2-5 percent of the loan amount)
Home inspections (Between $279 and $399 based on the area)
Protection plans for homes (Around $25-$50 per month)
Examples of recurring costs are:
Taxes on the property (4 percent of the cost of the house annually)
Premiums for insurance (Depending on the value of the house, ranging from $130-$1,383)
HOA dues (Between $100 and $1,000 per month)
Insurance for risk (Between $1,250 and $1,650)
Step 5: Use a Reliable Online Calculator
To determine how much you should charge your tenants, you will need to estimate your one-time costs as well as ongoing costs. Online tools can assist you.
Determine whether you can afford to buy or lease profitable properties. By using the costs of surrounding rental properties, it determines the value of your home.
Calculate your investments online. Let online tools determine the most desirable property rentals. It also offers insight into the best properties to purchase and rental value estimates.
Step 6: Adjust the Rental Value Accordingly
The cost of renting a space can change rapidly throughout the years. These include amenities, the place of the rental property as well as competition and need of a rental property. They all contribute to the value of rental for an investment property.
For information on how to increase the value of rental for an investment property you own, there are various ways to do it.
Conclusion: The Best Tool for the Job
To determine the rent price, it is important to consider many things to take into consideration. Making it all on your own could cause you to be overwhelmed. This article was created to help you determine the value of your rental property.
You've learned the meaning of a rental value and why it's important to calculate the rental value of your investment property. You've also learned the reasons why it is important to estimate the rental value and how to calculate it. Using an internet-based tool makes the process easier for you.
If you’d like to talk more about property management, or you need help with Everest Property Management, please contact us at Everest Realty.
As a top producing Realtor and Property Manager; Terry specializes in sales, extensive construction homes, rentals, REO’s, short sales, and all aspects of Real Estate. After graduating the University of Michigan with a master in MBA, Terry continued his endeavor and now has over 15+ years of experience in the Real Estate world. If there is anything that has to do with Real Estate and sales, you can always be sure of Terry to provide important, specialized knowledge.
