How to Value a Rental Property

Whether you are a Utah property owner or an out-of-state investor, it is important to know how to value your Salt Lake City rental property. Understanding the value of a real estate investment helps property owners avoid buying bad properties. It also helps investors determine “how much can I rent my house for” to maximize returns, then set the right sale price when it’s time to sell a property down the road.

Residential property management companies are experts in this field and can help guide you through the process. Here are a few insights from the best property management company Salt Lake City offers!

Valuing a House for Investment Property Owners

Real estate value is best determined by estimating how much income the property will generate over its expected economic life. This includes both the current year’s cash flow and growth in future cash flows resulting from inflation, per-unit occupancy improvements, and rent increases over time. Since rental properties are long-term investments, owners must understand valuations to manage enough cash flow and ROIs for long-term success.

To estimate how much profit your investment will make, analyze expenses related to the operation of the building. Property taxes, insurance premiums, maintenance expenses, and loan interest all factor into overall profitability. Property management companies in Salt Lake City also factor in vacancy and collection loss into rental rates.

Cost of property concept (R) (S)Why Is It Important to Value a Property?

Property values often depend on what tenants are willing to pay, which is based on the demand for real estate in a given area. A property manager can tell you that competition from other investment opportunities also impacts values. For example, property values drop when the market is saturated with similar investments, such as when another investor operates single-family homes in the area or a new apartment building opens up in a neighborhood.

Other significant factors impacting real estate values include:

  • Property size and location within a community or city
  • Property type (single-family home, condo, or townhouse)
  • Property’s condition inside and out

Understanding these key characteristics helps determine how much rental income a property can bring in. That means higher property value for properties with high occupancy rates and stronger cash flows.

Valuations also take into account how much it costs to operate each unit of the building, so lower operating expenses mean higher cash flows. In addition, property managers work with inspectors to help with values because they have access to information about nearby properties and can help sellers determine market demand in specific neighborhoods. This helps investors avoid buying a property that will not generate enough cash flow or sell for less than it is worth at the time of purchase.

What Are the Best Methods for Property Valuation?

There are two standard methods for property valuation. Rental property owners can use the net operating income (NOI) method or the gross income multiplier (GIM) model.

NOI measures a rental property’s profitability before adding costs for taxes or financing. The GIM method for determining value is simpler to understand but often fails to consider market changes that may impact future cash flows. Property values using GIM are significantly higher in strong markets compared to weak ones, which makes sense given the high demand for housing during economic boom times. Property owners should check both GIM and NOI references before choosing a valuation method.

How Property Management Companies Can Help Property Owners

Rental properties require a great deal of investment, so hiring a Salt Lake City property management company helps owners mitigate risk and increase ROI over the life of the investment. Property managers offer a range of services, but most specialize in analyzing how much rental income a property is likely to receive over time and how much it will cost operators to maintain the home.

Property management companies also help real estate investors value rental properties before making a purchase. If you’re not sure where to find the information you need to analyze NOI or GIM, search online or ask property managers for resources that show long-term historical price increases in your neighborhood. This information and local residential property management experience help guide potential investors as they consider purchase prices and rents.

A woman is holding a magnifying glass (R) (S)Finding the Right Property Is Easier With a Property Management Company

Investing in rental properties requires an understanding of how to value investment properties. The best property management company Salt Lake City offers can help rental owners find the right property through valuation and return on investment calculations. With the right property manager, investors also have a long-term partner to take care of every rental property detail, including rental market analysis, marketing, tenants screening, handling maintenance request, rent collection, and more.

In the Salt Lake area, Reeder Asset Management has the experience and expertise owners need for long-term real estate investment success! If you’re considering a new property, reach out to learn how our professional property management services can help you find the right property and maximize returns.

Find your rental property’s return on investment with our free Rental Property ROI Calculator!


Posted by:
Reeder Asset Management on December 2, 2021