How can you, as a landlord or property investor, ensure you get the best possible return from your real estate investment? There are many effort-based answers to this question, but getting the best bang for your buck relies on the best information. You can get this information through rental valuation.
You must use the correct valuation method to get the most accurate valuation. You must also ensure that you avoid common valuation mistakes. Learn more about guarding against such errors in this quick guide.
1. Using Data That's Too Broad
Market research and analysis are critical to an accurate rent estimate. Generalized data points can skew your analysis in a significant way, leading to heavy over or underestimations. This tends to happen when:
- The person conducting the analysis uses free and unvetted data straight from internet sources
- The data used covers entire counties or cities instead of neighborhoods, streets, or property types
- The sample size is too small for an accurate analysis
2. Overvaluing Improvements
Home improvement projects and renovations increase a property's value. However, many people fall into the trap of thinking an improvement significantly bumps the real estate valuation.
To avoid this, first, learn about which home improvements have the best ROI. This at least sets the stage for realistic expectations.
Second, learn about the demand for that improvement within the local market to assess the true extent of its value-adding potential. You may also want to evaluate the quality of the work done on the improvement.
3. Underestimating Maintenance Problems and Factors
Maintenance and repair issues decrease a property's value in the same way that improvements can increase it. Still, many property owners forget to subtract the value decrease when doing their rental valuation.
The best landlord advice here is to simply fix all these issues so that you can collect as much rent as possible. However, if that's impossible, don't forget about the potential value drop the maintenance issue could cause.
4. Ignoring Risk Factors
Some properties have inherent risk factors. A few common examples are:
- Accommodation for students always has a high tenant turnover rate
- Properties in the Southern States have a higher risk for termites
- Rural or isolated properties have extra security risks
These risk factors can increase insurance premiums and decrease the property's demand relative to others on the market. Ensure that you consider your property's unique risk factors in your valuation.
5. Misreading or Ignoring Market Demands
It's also worth paying attention to the entire neighborhood or county's property market value over time for longer-term investors. These trends will help you better set your present rental prices and give you an insight into what appropriate future increases may be.
Get a Rental Valuation You Can Trust Today
To recap, the five most common rental valuation pitfalls are
- Using inappropriately general or broad data sets
- Overestimating the value improvements add
- Underestimating the value maintenance issues takes away
- Ignoring unique risk factors
- Not paying attention to the market's trends
A rental valuation strategy that addresses these key weaknesses will give you the most accurate value estimate. At PMI Frisco, we can give you an obligation free rental analysis at no cost to you. Contact us today for unbeatable service and incredible value.
