How to Conduct a Rental Valuation

While several online sites provide free rental appraisals, consulting a property manager or real estate agent is essential. We are regularly updated on current trends, allowing us to help you get an accurate valuation of your rental property without compromising your return on investment (ROI).

How to Get a Rental Valuation

A rental assessment is vital when determining the economic worth of your property, as it focuses on the value and potential cash flow streams you can earn from renting it out. Therefore, several measurements must be calculated when determining the appropriate monthly rental price: net operating income and capitalization rate.

The net operating income is the revenue you expect from your property after subtracting any related expenses with ownership. On the other hand, the capitalization rate is calculated to determine the expected return on investment (ROI) on the rental property. Therefore, calculating the capitalization rate of your property involves dividing the net operating income by the current market value.

Property Valuation Methods

Since finding the rental valuation is a continuous process, working with a professional property manager goes a long way in determining if renting out is a solid passive income stream. In addition, we conduct regular evaluations to ensure you are aware of potential market changes and depreciation that impact the value of your property. Here are a few methods you can use to determine property value.

Gross Income Multiplier

This method involves dividing the property price by gross rental income. It is a simple approach to finding a fair market value, and it gives you an idea of how long it will take to pay off the rental property based on projected revenue streams. This method is simple, and property owners can use it to approximate the value of a rental property.

Discounting Future Net Operating Income (NOI)

This technique factors the expenses of owning a rental property without interest or taxes. To get an accurate value approximation of your rental property, subtract the NOI rate growth from the required rate of return on your investment. Finally, divide the NOI by the value you just calculated.

Divide the NOI by the capitalization rate and then take the NOI/Rate of Return and subtract the second number. This is more complicated and should be done by a reputable property management service to avoid errors that can compromise your return on investment. For more information, contact us at 3 Options Realty. Please schedule an appointment today with our professional property manager to enjoy quality services at competitive rates.