Does raising the rent on a SFH raise the value?

[Account Closed]

Let's say a Single Family Home was bought for $100k and rents for $1000 (GMR = 100)a month. If I am able to get $1,200 a month, wouldn't that raise the value of the home to $120k , using the same multiplier?

I have heard some say that it does and some say that it only applies to Multi-Family. But, as an investor, if you're able to raise the rent and get a better return, it would make no sense to say the asset is still worth the same as it was at the lower rent.

[David Faulkner]

Originally posted by @Account Closed:

Originally posted by @David Faulkner:

Agree with Jeff's answer. No. And that answer makes sense because houses are residential property, not commercial property ... as such many of the buyers are not investors but retail buyers looking to use them not as a rental but as a primary residence. Most retail buyers looking for their primary residence could care less what cash flow the property could produce as a rental, and this can actually benefit you on the sales side since a retail buyer will likely be willing to pay more for the property than a typical investor would.

However, it is still possible to do "forced appreciation" on a single family home ... if you buy a property well and then remodel in such a way that the remodel brings it up to the standard of the rest of the neighborhood and the resulting after repair value (ARV) increases the property value more than the remodel cost, then you have earned a profit (though the profit may not be realized until you sell or refinance) ... this is how professional flippers derive their profits, but the same exact process can be used by buy and hold investors. I've "flipped" every single house I've ever purchased, it is just that I flip it to the rental market instead of the sales market, but I still benefit from the forced appreciation same as flippers only with a much lower tax rate.

 Yes, but you're assuming I would market my rental to families looking for a primary residence when I wouldn't. I would market it to an investor. 

I don't understand why you would do that ... a family looking for a primary residence will typically pay more for a property than an investor would. At any rate, it does not matter, single family homes are valued based on sold comparables, not rent mulitpliers like GRM or CAP rates, and you unfortunately do not get to change the convention if you choose and it suites you. Even if you tried this and you found an investor to go for it, and the value derived this way were more than comps would come out, it still would not likely fly if the investor were purchasing with a mortgage since the bank would order an appraisal, and the appraiser is going to go off of sold comps, and if the appraisal doesn't come in they are not going to be able to get a mortgage based on the full over market value sales price.