Do you know how much your rental property is actually worth? While it isn't illegal to charge a lot for rent, it won't do you any favors when trying to find tenants. People like to rent apartments and homes at a fair value, after all.
One of the biggest mistakes you can make when renting out a property is misvaluing it. Charge too little, and you're losing money. Too high a rent can drive away new applicants.
Here are four ways a rental valuation can help you maximize your return on investment.
1. More Accurate Pricing
Many people purchase property to create profit. You can't accomplish that goal without properly pricing your rental.
This value is calculated by dividing the value of the property by your gross rental income. A lower number means a more profitable investment.
Once you know your property's value, you can research how much it should be rented out to make it competitive with other similar properties around it. It's difficult to do this if you don't know how to find others of similar value.
2. Minimize Vacancies
Rental vacancies are a problem area for any landlord, especially if you rely on rent as your primary source of income. A significant contributor to vacancies is unreasonable rent. People will often leave an apartment they otherwise thought was perfect if they can't afford it or if the landlord raises the rent too much.
To avoid this, it's best that you find out what your rental property is worth and local rental rates. Charge a fair price but don't undersell the value of your investment.
3. Calculate Property Taxes
Property taxation is based on the value of the property you own. It doesn't always take into account how much you rent it out for.
Before you purchase a property, it's important to determine its value to know what kind of taxes you're expected to pay. You may also bring down your property tax if the value of your investment also lowers.
4. Negotiation Leverage
Finally, rental property valuation gives you leverage if you ever have to negotiate the terms of a lease. Some renters will try to get you to lower the price of your property based on other rental prices they may have seen. It can make it challenging to collect rent from them.
However, a rental valuation lets you know exactly what your property is worth. Knowing this value helps you both support your pricing decision as well as defend yourself if a tenant ever tries to pursue legal action.
Perform a Rental Valuation Today
The best time to do a rental valuation is before you purchase your new property. If you know you're going to rent it out, you may as well figure out what the property is worth beforehand. This will save you from leasing it out for less than you should've.
PMI Prime Property provides property management services in the Northern New Jersey area. We can help both landlords and tenants, as well as provide home monitoring for investors. Schedule a consultation today to learn more.
