When looking to purchase a rental property, there are many things to worry about. These include ages of roof, furnace, AC, structure, etc. The most important thing of all is making sure the numbers work in your favor. When you are trying to value an investment property there are normally three ways to do it: Sales approach, income approach, and the gross rent multiplier.
I think the income approach is the best one to go by and can make sure the number work out perfectly on a buy situation. The income approach is essentially taking your gross monthly rent from the investment and multiplying it by 12. After this, you will subtract the property taxes, insurance, estimated yearly maintenance, 5% for vacancy, and a budget for miscellaneous repairs.
This number will get you the NOI, Net Operating Income, which is essentially the number that you take home after all expenses (not including mortgage and interest). Once you have the NOI, you will divide this by the cap rate which is normally in our area 10-12% to get you a full valuation of your property. This will help you get better leverage to negotiate with a seller and help you know what the highest you should go on a property is. Knowing how to value properties this way will also help you do flips, the BRRRR method, and easily succeed in the real estate investing game.
This number will get you the NOI, Net Operating Income, which is essentially the number that you take home after all expenses (not including mortgage and interest). Once you have the NOI, you will divide this by the cap rate which is normally in our area 10-12% to get you a full valuation of your property. This will help you get better leverage to negotiate with a seller and help you know what the highest you should go on a property is. Knowing how to value properties this way will also help you do flips, the BRRRR method, and easily succeed in the real estate investing game.