"I help my clients build their Real Estate Wealth. Are you buying, selling or investing?"
Sunny Ju serves as a Commercial and Residential Broker specializing in Investment Sales, Multi-Unit Buildings and Norths Sore Residential Sales. Sunny joined Baird & Warner as an experienced Business Leader who has spent the past two decades focusing on serving clients and improving businesses. Sunny is a certified Real Estate Negotiation Expert (RENE), Project Management Professional (PMP) and a Real Estate Broker. Her client-first mindset, financial acumen combined with utilizing her strong negotiation skills will bring you a confident and rewarding real estate transaction experience.
How to Determine the Value of Rental Property
Investment properties can increase your revenue and can lead you to more convenient life. How does one determine the value of an investment/rental property? Below are most common methods used.
- The Sales Comparison Approach: The sales comparison approach is one of the most recognizable forms of evaluating residential & commercial real estate. This approach is simply a comparison of similar properties that have recently sold in a given area over a given time period. Most investors want to see the results of a comparative market evaluation over a significant time frame in order to establish and view emerging trends in value. This method relies on the specific attributes of each property utilized in the analysis and the differences between buildings to assign a relative price value for a property based on the most similar past sales.
- The Income Approach: The income approach focuses on what the potential income for a rental property yields relative to the initial investment. The income approach relies on determining the annual capitalization rate (known as the Cap Rate) for an investment. This rate is the projected annual income from the gross rent multiplier divided by the current value of the property. The cap rate is the ratio of the Net Operating Income (NOI) to the property asset value. For example, if a property is listed for $1,000,000 and generates an NOI of $100,000 then the cap rate would be $100,000 divided by $1,000,000, or 10%.
- The Capital Asset Pricing Approach: The capital asset pricing model (CAPM) is a more comprehensive valuation tool for real estate. The CAPM introduces the concepts of risk and opportunity cost as it applies to real estate investing. This model looks at potential return on investment (ROI) derived from the rental income and compares it to other investments that have no risk, such as United States Treasury Bonds or alternative forms of real estate in-vestment such as real estate investment funds (REITS).