How do you valuate a rental property?

7 Replies

Hello everyone and thank you for taking the time to read this. I hope your business is doing well? As a new REI, I have heard and read about several different ways to evaluate a property. I am interested in hearing them about them all from some of the members here on BP. I have found there are some very knowledgeable people here on BP that don't mind sharing some advise to help you out. And I don't mind asking. I hope someone else gets as much out of their advise as I do. It is why I ask the questions after all.

Some of the ways I have heard of figuring out the value of a property were taxes x 40, annual rent x 12 or 15 and a few other ways.  I would really like to know how some of you pro's do it?  From the quick figures to the more detailed analysis?  The first way was not how to evaluate a rental!  Just how I heard to evaluate a property or vacant land.  I did not come up with it, so if it is not right, it was not me.  I thought it sounded funny but I am not sure?

So what is your favorite way to quickly analysis a rental property?  And then how do you really dig deep to analysis a rental property if it looks good or the numbers are close and you want to dig a little deeper into it?

I greatly appreciate your answer.  I let my nephew read these answers as well as he is 23 and just about to take the real estate course and exam.  I am trying to get him to go ahead and signup and start reading and asking questions.  BP Rocks.

May you all find a good deal today and land it.  May the Lenders Lend and the Borrowers Borrow.  Let the first timer have some success and let the old timers teach their craft.  You people Rock.

On the menu bar of the website, toward the right side, there's a menu option called 'tools'. There's a great analysis tool for rental properties.

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My method is pretty simple for residential rentals. In my area, a 1% deal is about as good as it gets. A quick look will tell me if I can get close to that. If I think I can, I use a commercial property kind of analysis to determine what the NOI will be. Most people don't include debt service when calculating NOI, but I leave it in because that's still real money coming out of my pocket. Doesn't matter to me if it's a SFR or a 200 unit building, the NOI is what really matters.

If you haven't, find an REI club in your area. You'll find lots of people who will be happy to discuss how they do it in your market. Best of luck!

Value to me is based on income. I am only interested in cash flow when assessing a potential property. Appreciation is not a deciding factor as I prefer profits based on todays income.

No two properties are the same but having base standards eliminates most properties.

I base my calculations on having 100% financing.