Comparing Commercial and Residential Investment Properties to Determine Rent Value
Making accurate assessments of rental values of investment properties – residential or commercial – is key to managing them successfully. To set competitive rental rates that maximize the income potential of an asset, various factors need to be evaluated carefully to arrive at a calculated rental value estimate for both types. In this article, we’ll demonstrate this method.
Residential Investment Property
Rent value can be determined using several factors. Location plays a key role since its proximity to schools, amenities, and public transit affects the desirability of an area. Size and condition also play into it – larger properties commanding higher rents.
Rent values can be determined through comparison between similar rental properties. Comparative market analysis (CMA), taking into account factors like size, location, amenities, and features can help landlords establish more cost-efficient rents by taking into account current market trends when setting rent prices.
Age, layout, and features such as parking can affect rent value. Landlords must ensure their rent covers operating costs like property taxes, insurance, and maintenance fees before setting their rental prices accordingly. Landlords should also factor in other expenses that may be incurred.
Commercial Investment Property
Calculating rent value can be more complex when applied to commercial leases due to their unique nature. Commercial rent is calculated based on the square footage of the property rented. Rent per square foot may differ based on factors like location, condition, and tenant improvements.
The “price per foot” method of calculating the rent value of commercial properties is one common way of doing so, while “price per square” relies on finding average rental prices per square footage in similar properties near them and then applying this rate across its total area – however, this approach doesn’t account for other important considerations that influence rent value such as visibility, accessibility or tenant mix.
Capitalization-Rate Method
The capitalization-rate method takes into account both Net Operating Income (NOI) and market capitalization rate when considering property. NOI can be calculated by subtracting operating expenses from gross income. Capitalization rates reflect perceived risk/return of investment factors and can help landlords calculate rental rates by applying them against the NOI of their rental properties.
Rent value calculation requires careful evaluation of many variables such as location, property features, market trends, and operating costs. With residential investments, it’s particularly important to factor in factors like size amenities and rent comparison. Commercial properties will be influenced by usable square footage or tenant improvements as contributing elements.
Rents can be set at competitive rates by carefully considering various factors and researching them thoroughly, helping landlords attract tenants while increasing income. Rent values may also be adjusted based on market performance to maintain a profitable portfolio of rental investment properties.