The most recent data from the U.S. Census Bureau shows rental prices in New Orleans, LA, run more than $1,300 monthly. As a property owner, do you know 'what is a rental valuation' for your rental units? You need to know the rental property valuation so you can rent it for a fair market value.
Ways to do rental valuation include the comparison or income approach. You can also use a gross rent multiplier.
Here are five ways how to conduct a rental valuation.
1. Comparison
One of the easiest rental valuation methods is to look at what other rental properties are going for in the neighborhood. You must consider what each rental property offers, such as parking, amenities, and updated appliances, to get the best value for a rental property.
A square footage comparison is an excellent way to determine how to conduct a rental property valuation. A slight change in square footage can make all the difference.
2. Income
How much can your property bring in when compared to your initial investment? This is called the income approach in a rental property valuation.
The income rental valuation method is based on the annual capitalization rate. For example, you divide the initial investment by the monthly income you expect to receive. You are left with the capitalization rate, which answers the question, 'what is a rental valuation?'
3. Gross Rent Multiplier
How much rent do you think you can collect annually? The gross rent multiplier rental valuation method.
You divide the sale price by the monthly income to get the rental property valuation.
4. Cost
The cost of rental property valuation takes the value of the property, equal to the cost, and then minus the deprecation, plus the land value.
For example, the rental property valuation using this approach takes a property built ten years prior, creating a duplicate property using the same materials ten years prior.
5. Capital Asset Pricing Model
The capital asset pricing model takes the return on investment and contrasts it with other properties with no risk.
The investor will look at other properties and their returns to figure out if they are worth the investment. Everyone wants a reasonable rate of return, and this method determines the value of a rental property and whether or not the property is worth the risk.
Five Ways To Conduct a Rental Valuation
Five ways to conduct a rental valuation include the comparison or income approach. You can also use a gross rent multiplier. The cost approach and the capital asset pricing model are two other ways to determine a rental valuation.
While no one system's the best, you can figure out a rental valuation using these methods.
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