The median rental price in Charlotte as of May 2023 is $1,959. But should you use that number for a rental valuation? No, you shouldn't.
The actual rent prices you should charge for your rental properties can be quite different than the average. If you choose the wrong rental price, you could end up with no tenants.
You need to determine the ideal rent prices in other ways. There are many different property valuation methods that landlords use. You should research these and determine which one works best for you.
For now, this article can help you get started. Read on to learn about three popular rental valuation methods.
Income Approach
How much would you make with a certain property? This is what the income approach can teach you. It compares the initial investment to the amount you could end up making down the road.
Say that you could make $1,500 monthly on rent (be sure to include property taxes). Multiply that by 12 to get the annual income you'd make from a rental property (18,000). Divide that by the amount you pay for the rental property (let's say this is $150,000).
18,000 ÷ 150,000 = 0.12 or 12%
12% is the amount of return on investment you can expect to make in a year. This isn't all that much. You may want to purchase another property.
Sales Comparison Approach
However, to perform the income approach, you first need to determine the amount of rent you could make. The sales comparison approach can help you get this.
It's fairly easy to use this method. All you have to do is find properties similar to yours that were recently sold. You can also look at the rental amounts that landlords are offering.
Look for properties that have, say, similar sizes, locations, and amenities to your properties. You can then, if necessary, divide the square footage by that rent cost. That should give you the amount the landlord is charging by square foot and you can then apply that to your property.
Cost Approach
The cost approach method focuses on the real estate value of a property based on what it can be reasonably used for. Landlords can use their properties for charging rent, but the price of renovating a property may be too much. It may be better for them to destroy the building and sell it for the land value.
Essentially, the landlord needs to get two values: the value of building materials and the land value. They then need to subtract any depreciation from the total building value and add it to the land value. If the resulting value is less than what they'll pay for the building, they should move on.
Try Our Property Management Services
Again, these are just a few of the popular rental valuation methods. You need to do some more research to learn about all the methods available to you.
If you're having trouble with your rental valuation, talk to us. Here at Wilkinson Property Management, we offer full property management services. This includes property valuation.
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