Estimating rental value is a big question when an investor thinks about renting out there property. Rent estimation is very important for a profitable property business. When the prices of properties increase, the demand for rental homes also increases. If you have a rental home, you must know how to estimate the rental value to get the maximum advantage. However, the calculation of rental value is not as simple as it seems.
When we calculate the rental price, it’s not just a random number. But you have to consider various factors before you estimate the rental value of the house. This article will help you to know that.
Why do you want to rent your house?
First of all, you need to be very clear why you want to rent out your property. It has a strong connection with the rental value of the property. Most investors want a monthly income, renting out their secondary properties. Some people flip the house for a good profit, and if they are not getting the right price, they rent it out for a short period of time. They rent it out and wait for the right buyer. It becomes a source of secondary income for them, and the house price also increases with time.
Some investors rent out their properties as part of their real estate investment strategy. The renter will cover the maintenance cost of the property, and they will sell the house when the market is high, and the demand for houses is increasing. Moreover, the rental value of a property depends on various factors, like location, its condition, the mortgage you have to pay, and the cost of maintenance. So, the rental value of any two properties cannot be the same, as it depends on so many factors.
Renting properties is a lucrative business, and any landlord can generate good passive income if they makes wise decisions.
How to estimate the rental value of a housing unit?
When you decide to rent out your property, you have to decide about the rental value of the unit. The correct estimation is very important. If the rental price is high, you may not get any tenants for your house, and if it's low, you will lose money every month. Here we have a few methods which you can use to estimate the rental value.
House value percentage: You can start with the price of the house. According to experts, the rent of the house can be around 1% of the total worth of the house. You can increase or decrease it by 0.1%. For instance, if the value of your house is $400,000, the monthly rent can be around $3,200 with a 0.8% value of the house, and it can be $4,400 with a 1.1% value of the house. So, it will be a fair estimation considering the worth of your house.
Depending on the current housing market, you can use the maximum or minimum value. Experts recommend using the 0.8% valuation as part of the competitive rental market.
Comparative analysis: Comparative analysis is another method to estimate the rental value of the house. To use this method, you have to find a similar house in your area and see the rental value of that house. You have to consider various factors like the size of the house, salient features, and finishes. Find a similar house in your neighborhood for the correct estimation. This method may be time-consuming, and you may not find the same property. In this case, you can use the approximate value of almost the same property and calculate the value of your property based on that.
You can do this process manually, and real estate investment calculators are also available online, making the process easy for you. You have to provide the address and property type of this online tool to show all comparable properties. Analyzing these tools is very easy and quick; however, make sure you are using a reliable tool.
Calculation of property expenses: If you calculate the maintenance cost of your property, it will help you estimate the rental value. The maintenance cost should not be more than the rental price. So, first, calculate the expenses of your property. It may include mortgage, taxes, insurance, repair and maintenance costs, and HOA dues if it is a condo. These are just the main expenses; there can be many more depending on individual situations. Add all these expenses and the profit which will be in your pocket to estimate the rental value of the house.
Using an online rent calculator: Calculation of rental value is a time taking job; if you want to do it quickly, you can use the online rent calculators. These online tools are very efficient and can analyze the data in different ways. They can do comparative analysis and tell you the value of your property within minutes. Many companies offer these calculators to investors, but every calculator is not trustworthy. So, if you are using a calculator, it must be reliable. The sources of its data must be reliable, and it must use more than one source for analysis.
Hire professionals: the above-stated methods can be time-consuming for you if property investors are not your primary business. The best solution is to hire property agents of companies who know this market in this situation. Professionals know the market, and they can tell you your property's rent value, which is more accurate than other methods. Yes, you have to pay the professionals, but they will do a lot of your work, and you will feel free after hiring these professionals. Moreover, they can later help you find suitable tenants and guide you about different procedures. So, hiring professionals is the best method if you can afford it.
These are just a few basic methods for rental value estimation. The correct estimation will help you make decent money every month, and once the estimation is done, you can adjust it with time.
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.
