26 Feb Determine the value of your San Diego Rental
How to Determine the Value of Your San Diego Rental
One of the most rewarding investments you can make is investing in a rental property. When it comes time to find a tenant, RMG can help you determine the value of your San Digo Rental property. If done right, you become financially independent. Owning a rental property in San Diego is excellent; you have a wide range of potential customers to serve with your rental property. Hiring the right property management company is crucial.
To ensure that you don’t run at a loss, you must know the real value your San Diego rental property is worth. It is also necessary to price your property at the right value so that you don’t drive away potential tenants or buyers because your property is more expensive than the norm.
This article will guide you in determining the right value for your property and examining the factors that can influence this value.
How to Determine Your San Diego Rental Property Value
Knowing your rental property’s value will help you avoid profit loss or undercharging, or making a loss on your investment. Here’s how to determine your San Diego rental property value accurately. There are 3 main approaches:
Use the Sales Comparison Method
This is one of the most popular methods real estate investors use to value houses in San Diego. What does it entail? Sales comparison is simply finding out the prices of recently sold rental property in a particular location in San Diego over the last 6 months. Usually, the investors check the prices of about 3-5 similar houses for accuracy. It’s also important that it should be in the same housing area.
San Diego rental properties are not always exactly the same or identical, further comparative analysis is necessary. If you’re working with Realty Management Group, a complete report illustrating the variations between the property you own and other properties with similar characteristics.
Try the Gross Rent Multiplier Approach
This method works in a way that to get the value of the property, you have to calculate the amount of rent you’re eligible to collect per year. This is a fast and straightforward rental property valuation method.
To determine your property’s value, if you make about $100,000 annual rent income, and the average GRM of properties in the area is 6, multiply $100,000 by 6. The value of your property is $600,000.
To get a fair value of your property, compare the Gross Rent Multiplier value of similar properties nearby. To calculate this value, GRM = Purchase Price / Annual Gross Rental Income.
For example, a similar property is up for sale at $500,000, and they make an annual rental income of $100,000, calculate the GRM by dividing $500,000 by $100,000. The GRM is 5; this means that the property’s purchase price is about 5 times the rental income it generates yearly.
If the GRM of your building is higher than other similar properties in the area, it may not be an excellent choice for investors. This method of valuing a property is not highly reliable, however. It fails to consider including the cost of repairs, utilities, taxes, and other expenses that the building incurs into the calculation.
Make an Estimate with The Income Approach
To find your property’s value using this approach, divide the Net Operating Income (NOI) of your income property by the cap rate. Your property value = NOI/Cap rate.
Cap rate simply means the estimated ROI on your rental investment. To determine this, divide your NOI by the current market value of the building. To determine the current market value, assess the sales price of a recently sold property with similar characteristics as yours. So, if they sold the comparable property at $300,000, this is the estimated current market value.
To determine your NOI, deduct your operating expenses from your Gross Rental Income (GRI). If your GRI is $80,000, and expenses cost $30,000, your NOI is $50,000.
To determine your cap rate, divide your San Diego rental property’s NOI of $50,000 by the market value of $300,000. The cap rate is 0.16 or 16%.
Your rental property value is your NOI $50,000 divided by your cap rate 16% = $312,500.
Property Management and What Influences the Value of Property in San Diego?
A couple of factors can influence the value of rental property in San Diego. For instance, a single-family house’s value would differ from a condo or a vacation home because they don’t offer the same perks or benefits.
What other factors influence property value and why?
- Location: Where your property is located goes a long way to determine what it costs. It is one of the most significant factors that influence your property’s value because you can’t value your rental property way higher than the other buildings in the location.
Tenants also do their research before choosing to go for a rental home and have an idea of how much houses cost in that area. Generally, rental property located in high-end areas in San Diego will cost more than in other areas.
The average costs for a rental property in the area your building is located can give an idea of how much your building will go for.
- Commutability, Economic Buoyancy: The ease of commutability can also influence your rental property’s value. How easy is it for residents to commute to and fro the location? Is it close to major streets or roads? How accessible is it, and by which means of transportation?
Again, economic buoyancy is another factor that counts for the value of your rental property. What makes for easy living in the community where your property is located? Is it close to the banks? Near the supermarket? Close to schools or restaurants? How prosperous is the community that surrounds your rental building?
Valuing your rental property is a crucial step for your real estate investment goals. Realty Management Group will do the legwork and provide detailed analysis to assist in determining the rental value. When it comes time to select a property management company, Realty Management Group is here to help!