If you've considered investing in a rental property in Troy, Ohio, you've made a wise decision. With the right property, you can ensure a lucrative rental income for several years.
However, before you sign on the dotted line, you must perform a rental valuation first. This lets you assess the value of a rental property to determine whether it's a wise investment.
But how exactly do you conduct a rental property valuation? Here's what you should consider:
1. Sales Records
Your first step should be to see how many recent sales have happened for similar properties. For example, let's assume you wish to buy a two-bedroom house.
You want to check how many two-bedroom properties of a similar size have sold within the last six months. If there are several, then you may want to consider buying the property.
If there aren't, you don't necessarily have to dismiss buying the property. However, you should focus on buying a property that already has a solid track record.
2. Capital Asset Pricing Model
With this approach, you analyze both the risk and opportunity costs when buying a property.
You'll have to look at the potential return on investment compared to other similar investments. You'll have to look at other investments that don't carry risk.
If you feel that these other investments will bring in a higher ROI, you'll want to hold off on investing in real estate.
3. Consider the Income Approach
Another method of rental valuation is to estimate how much you'll earn via your rental income. You have to decide if it's worth it with your investment.
Let's suppose you buy a house for $120,000. Afterward, let's assume you earn a profit of $2,000 per month from your rental income. You have to consider whether the $24,000 per year is worth your investment.
You have to realize that it'll take several years to pay off your mortgage. You'll have to pay interest on your mortgage, so your profit won't just cover the cost of the property.
Your rental income might not be as valuable in the future as it is today. With inflation, you'll have to ask whether you'll be able to build a lucrative income.
You can always raise your rent once the lease agreement ends. However, you have to be aware that raising the rent doesn't always work. You may lose an existing tenant or have a hard time finding a new one.
Take your time when deciding to buy a new property. If you do, consider property management to help you with your rental business.
Try These Rental Valuation Methods
Your first approach to rental valuation is to look at existing sales records for similar properties. You may wish to buy properties that already have a successful record.
The next approach is the capital asset pricing model. With this approach, you'll compare your potential property investment with other risk-free investments.
The final approach is to estimate whether your ROI after buying a property will be worth it.
But to succeed with these tasks, you need a great property management team. With consistent five-star ratings and excellent service for 20 years, PMI Oakridge Management is your top choice!