Price A Property With Investment Property Calculator Melbourne

Knowing the value of property held for investment or rental purposes is not the same as knowing what a property is worth without an income component. The dilemma comes in choosing whether to work on the income stream as calculated by a gross rent multiplier or a cap rate, or to concentrate on the property inherent value as identified by either a per-square-footage value or comparable sales. Using investment property calculator will make the job easier.

Multiply Square Footage

From a real-estate point of view, rental properties typically are no different from those owner-occupied houses, co-ops, or condos. With this basis, you can value rentals as the other houses by looking at the sales in the neighborhood of comparable properties. Use the selling price and divide it by the size of the property so you can calculate a cost per square foot.

So, if a 2,000-square-foot property in your neighborhood has been sold for $620,000, $310 is the price per square foot. Therefore, if you have a property that is 2,050 square feet and multiplies it by $310, $635,500 would be the value.

Find the Gross Rental Multiplier

GRM is a valuation metric that focuses on a property in connection to the rental income. To calculate it using an investment property calculator, divide the price of a property by its annual rent. So, if a $500,000 property has a rental amount for $3,000 per month, it would have a 13.9 gross rental multiplier. The amount is obtained by dividing the annual rent into the $500,000 price. Another way to determine the value is through a reverse calculation of the GRM.

Another example would be a property that rents for $2,200 per month in a location that has an average GRM of 11. To come up with a yearly rent, multiply the monthly rental amount by 12. In this case, you get $26,400. After that, multiply it by the 11 GRM to get an amount of $290,400.

Look For The Capitalization Rate

Cap rates go beyond than GRMs as they include expenses in their calculation. To get a capitalization rate, you need to calculate a net operating income.

To achieve this, add up the yearly rent of a property and subtract a vacancy factor as well as operating expenses such as repairs, property taxes, and management. After that, divide the net operating income by the cost. So, if a $500,000 property has a rental amount of $3,000 and vacancy and expenses of $13,000, its NOI is $23,000 yearly. The cap rate you get is 4.6 percent.

You can also get values by calculating cap rates in reverse as with GRMs.

Evaluate Special Considerations

When selecting which valuation model to use for calculating a rental property, opt for the one that can offer the highest value with the use of an investment property calculator Melbourne. So, if investors are paying higher amounts compared to traditional homebuyers, use cap rates or GRM to get the price of your property. When it comes to conventional buyers who focus on comps on a per-square-foot, you can use the valuation methods above.