Over 38% of the Texas housing market is occupied by renters. With such a large fraction of Texas residents renting there is a lot of earning potential in Texas-based rental properties.
In order to turn a profit landlords need to know what their properties are really worth in the market so they don't lose money. Keep reading to learn how you can conduct a rental valuation in San Antonio.
What Is a Rental Valuation?
A rental valuation is a formal appraisal of your rental property. This valuation shows you the fair market value of the property while it is being rented out in a leasing agreement.
This valuation is helpful to set your monthly rates and keep track of your equity in different properties. Being mindful of your property's value can help you make a fair rent calculation and use the rental property as a means of passive income.
Conduct a Sales Comparison
Sales comparisons determine how much a home is worth by comparing the property to similar property's recent sales. When realtors and appraisers make this comparison, they look at properties that have been sold in the past 30 days to get an accurate view of your current market value. To get a more accurate assessment, you should compare your property against multiple similar properties and remove any outliers.
Consider the Net Operating Income (NOI)
The NOI of a property includes the rental property's monthly operating expenses, not including any mortgage and depreciation expenses. By factoring in a property's net operating income, you can accurately determine if a property will be better served as a rental or on the market. Rental properties are business investments and should be considered as such.
Use the Cost Approach
The cost approach is used to evaluate properties that don't have comparable sales in the area. This approach compares the building cost of a similar structure and a pre-existing property. The formula for determining this cost is: the value of property= cost – depreciation + land value.
When comparing this to the cost of building a new home, you need to look at the cost of the same building materials as well. Of course, your rental property is liable to a depreciation value, depending on age. However, building materials in older units are sometimes valued higher because of their stability.
Try the Capital Asset Pricing Model
The capital asset pricing model is one of the most complex yet accurate ways to conduct a rental valuation. The Corporate Finance Institute explains that the "Capital Asset Pricing Model" shows the relationship between an expected return and the risk of investing in a particular asset. Prospective real instate investors need to consider their bottom line when investing in different rental properties so they can turn a profit.
Make Sure Your Rental Valuation is Accurate
A proper rental valuation can give you confidence in your real estate portfolio. Without an accurate understanding of your property's value, you can end up operating in the red. Contact us at the Home River Group for all of your rental valuation and property management needs.