Fair market rental value

by | BiggerPockets.com

Fair market rental value is just another step in the process of evaluating your investment property!

Rental values in most areas vary over time, market location, population need, community growth and community cost of living!

Rental values can also serve as an indicator of new and upcoming communities to invest in and serve as an indicator of a declining market.

Fair market rents are generally based on comparable rents in the area of investment but one should use common sense in this evaluation just as one would with comparables to determine the retail value of a subject investment.

We call this “Apples to Apples – Oranges to Oranges” evaluation. The comparable needs to be in likeness and location of the subject property you are trying to compare.

One way to determine the fair market value is to ask a real estate agent in the area for comparative rentals.

As an investor in some areas of investment you can gain more profit from a real estate say not only from the retail side of property but by adding an income approach in the valuation can produce a larger sales price. The income approach, the value of the property is estimated using the income, the property is expected to produce in the future.

You will find that this method is mostly used on commercial and multi unit property types but works well when selling a property that a buyer wants to hold and rent.

You will find a great web site with tons of data free at:
http://www.huduser.org/datasets/fmr.html

NOTE: The preceding information was originally posted in the BiggerPockets forums. Feel free to leave your comment in the original fair market rental value thread

About Author

Joshua Dorkin

Joshua Dorkin is a serial entrepreneur, investor, podcaster, publisher, educator, and co-author of How to Invest in Real Estate. He started BiggerPockets to help democratize the real estate investing landscape for himself and others, aiming to make it accessible for everyone, regardless of income or education. Today, BiggerPockets is the premier real estate investing website online with over one million members and reaching over 70 million people with the message of financial freedom through real estate investing. Joshua, along with his wife and three daughters, make their home in Denver, Colorado, and spend any time they can traveling, exploring, and adventuring. Read more about Joshua’s story in 5280 and Inc.com.

2 Comments

  1. From what I can see, there is a lot of hype about the local real estate market and how hot the rents are and sky high. What that does is attract a lot of speculators, investors and builders. The new buildings have smaller units, only they are flashing all of the bells and whistles. They have bling. Plenty of prospects view these and then go out and view larger units in older buildings and they are disappointed because they’ve already seen so much eye candy out there. I am also looking at the fact that people who own property are posting rentals at significantly lower estimates than what the experts computer generated estimates come in at. I think, there are those who are relying on media driven accounts to hold out for high paying tenants, and then there are those who are renting at the market and filling their vacancies.

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