Best tools for rental valuation?

6 Replies

Either hire an experienced and competent realtor to perform a CMA or BPO for you or hire an appraiser. Period.

Even Zillow encourages you to consult an appraiser. Zestimates use macro-market data that seldom understands the market. There are many factors that someone who works in the market daily will understand that a computer program simply won't. AVMs have gotten better... but they still are not reliable and most have standard deviations (remember high school statistics?) of at least 20% and confidence scores under 70. Too risky to trust your money to any automated system.

The sales comparable approach to value will dominate regardless of cash flow if it's a single family home or 1-4 units and is being financed. 

Other approaches (Cap Rates, GRMS, etc.) are not nearly as reliable when talking about residential properties... and if anyone mentions $/square foot... kick them.

@Seth Nadreau I understand that interior finishes and the breakdown of the space used can be a big differentiator (a large living room is worth less than a living room + additional bedroom or bathroom) — but are there other reasons someone shouldn’t considered price per square foot?

$/sf doesn't take in any factor other than square footage. 

Now, if you're in a neighborhood where one builder built 1500 homes in 2005 and all of them are 1600sf, you may be ok since everything is the same.... but that's generally not the case.

The $/sf model is a lazy one and requires minimal research and unstable results. Site size, view, amenities, outbuildings, finishes, etc. are ignored completely... and these matter.

Oh... and you don't compare a duplex to a SFR. You keep like properties with like properties, even if that means you have to expand your search criteria a bit or look in competing neighborhoods.