To determine the rental value of a property, it helps to compare similar homes in the area and what the similar homes recently rented for on the market. It is also helpful to determine the risk of renting the house as compared to what income returns might derive from other types of investments.Continue Reading
The sales comparison approach of valuing a rental property looks at other similar properties in the market area and bases the rental value of the home off the prices of known rental properties. Because no two properties are exactly alike, this isn't a precise valuation, but it may provide a price per square foot for a renter to set a rental price.
The capital asset pricing model considers what the same investment principal yields in a no-risk setting. For example, if the same amount of money likely yields a higher return in a completely safe investment model, it makes no sense to rent the property. This factor takes into account the likelihood of crime and maintenance costs lowering the net income from the rental venture.
Considering the value of the home is another helpful tool for determining the price of a rental property. Rental prices range from slightly less to slightly more than one percent of the total home's value. The more a home is worth, the lower the appropriate rental price is as a percentage of the home's total value. The renter might also carefully consider any included expenses, such as lawn maintenance or appliance upkeep, that increase the total cost of renting the property.Learn more about Real Estate