Are you considering investing in your first rental property?
Conducting a rental valuation is an important step in figuring out whether a property is worth your time and money. A good rental valuation will illuminate your earning potential and take into consideration any expenses you may have to pay.
In this rental valuation guide, we'll get into the different approaches you can take to make your evaluation a success. Keep reading to learn more so you can start making money on your properties sooner!
Comparing Sales Approach
When you perform the sales comparison approach, you're looking at what people have paid for homes and rental properties over a period of time.
These comparisons are limited to the housing market in one specific area. Because housing costs differ in various parts of a city, it's best to compare spaces in the areas directly surrounding the property.
To get a good idea of the trends in the area, look at a sales comparison over a long period of time.
You'll need metrics to determine the going rate of properties of different sizes. Most investors use the square-foot measurement. Then, look for how many dollars per square foot each property rents. If most properties rent for $0.75 per square foot in your area, you can expect to reap the same profit.
Of course, the price of a rental property can vary according to its amenities as well. If you provide better features to your residents, you can expect to charge more.
Capital Asset Model
The sales comparison approach doesn't account for the potential risks or opportunities in a rental property. That's where the capital asset model comes in.
This method of rental valuation focuses on seeing if the property is truly worth the investment. It compares your potential return on investment with investments that have no risk, like real estate investment trusts (REITs). If the return on investment is less than you would make with a risk-less investment, you shouldn't take on that property.
You should also look into the risks related to your rental property. Risks might impact your return on investment. That's because older properties or spaces with a lot of damage will have higher maintenance charges. Conduct a thorough inspection of the property to get an idea of how much it might cost you.
Hire a Professional Appraiser
The best way to figure out a property's earning potential is to hire a professional appraiser.
A rental valuation expert will assess the property for you and give you a report on its overall value. They'll be able to answer your questions about your potential earnings. Having a professional appraiser will give you the reassurance that the job will be done the right way.
Finished With Your Rental Valuation?
A rental valuation can help you find properties that will gain you lots of clients and expand your business.
Once you're finished with your rental valuation, you'll need to manage the property and start finding tenants. You can attract tenants by setting up a marketing strategy for your properties.
Ready to start investing in real estate? Contact us today to see how we can help!