Baltimore had the second-highest rental vacancy rate in the nation in 2023. You can attract and retain tenants more easily if your rent reflects the true value of your property.
Accurate rental valuation can be challenging, though. You have several methods available for an investment property appraisal. Learn more here about how to ensure you're using the best rental pricing.
Sales Comparison Method
The sales comparison method is one of the most widely-used techniques for valuing real estate. You calculate the value of your rental property based on similar properties that recently sold in the area. For the sales comparison method to be effective, the comparable properties must be as similar as possible to your rental.
Keep in mind that the sales comparison method will provide a reasonable estimate, but it isn't an exact tool. You need a certified appraiser or real estate agent to be sure your sales comparison is as accurate as possible.
Income Approach
The income approach is a good method for rental valuation of commercial properties like apartment complexes or office buildings. It's based on the property's net operating income and the capitalization rate.
Net operating income only includes regular operating expenses, not costs like mortgage payments, capital repair costs, and depreciation. To calculate the cap rate, you can divide the net operating income from the year you bought the property by the price of the property. Dividing the net operating income by the capitalization rate gives you the property value.
Gross Rent Multiplier Method
The gross rent multiplier approach values a rental property based on how much rent you'll be able to collect each year. It doesn't include the operating expenses for your property, though. This makes the property valuation less precise.
Dividing the current value of the property by the gross annual rental income gives you the gross rent multiplier. You can see approximately how long paying off the property will take.
Cost Approach
The cost approach estimates the rental valuation of a property by calculating how much replacing the property with an entirely new one would cost. The appraiser subtracts depreciation from the cost of the property and adds the value of the land to get the property value.
The cost approach is a common method for vacant land. It's more reliable for newer structures than older ones. It considers the property's age, location, and obsolescence.
Capital Asset Pricing Model
The capital asset pricing model compares the return on investment from rental income to low-risk investments like United States Treasury bonds. This model encourages investors to consider possible risks before buying a property. You can determine what return you want in exchange for putting your money at risk.
Getting an Accurate Rental Valuation
An accurate rental valuation is important when you're buying or selling an investment property. It also helps you set the right rental price. Several methods are available for an investment property appraisal.
The team at PMI Bmore Metro will conduct a property market analysis regularly for your property. Our experts will help you set a rental price that gives you the best ROI. Our full-service real estate asset management services help you maximize the benefits of your investments.
Get a free rental valuation with PMI Bmore Metro today to learn how much you could profit on your Baltimore rental.
