In this rental property valuation guide, we look at how to value rental property and also check out a few other aspects of property due diligence.
As with researching a property's sales valuation, the most accurate representation of a property's rental value is given by comparables, or comps. Comps are prices that similar properties -- that is similar spec, location and condition -- have rented for recently.
The main things you need to know are how much the property will rent for and what the demand will be... i.e. how long will it take to let?
Although letting websites won't tell you what properties actually let for, they tend to be a rather more accurate yardstick for rental values than for sales values.
You sometimes find that properties listed privately by the landlord can be overvalued. But by the same token, agent properties can also be overvalued when first listed (this is a tactic used by some unscrupulous agents to get business).
Rightmove is a good source of rental values nationwide and their "Price Comparison Report" gives you an instant collection of rental comparables for the local area. Citylets and Lettingweb are popular in Scotland. Citylets is also big in Northern Ireland.
Where you can't find an exact comparable, you need to extrapolate from the nearest one available. Your skill in doing this will improve with practice.
Calling a local agent is a fantastic way to confirm a rental property valuation. They will be more than happy to talk to you if they think they'll have a shot at letting the property for you. And they're less likely to give you duff info as they don't want to be wasting their time on unlettable properties!
An awesome tool for gauging lettability is the Citylets quarterly rental report. It gives time to let stats and average rent achieved figures for different sizes of property by postcode areas of major cities. Unfortunately this currently only covers Scotland and Northern Ireland.
One of the rental property valuation tools available to letting agents is the historical rent data gathered by lettings portals like Citylets and Lettingweb. Unfortunately this info is only available if you sign up as an agent.
But if it's any consolation, I don't find no longer having access to these much of a handicap... I can get along just fine with the public resources.
Property due diligence refers to the property investment research that you should carry out before you make the decision to invest.
Property valuation is a big part of due diligence... but here are a few additional factors that you should consider.
Using a standard form to systemise your property due diligence process can help reduce the chance of making costly mistakes. You can download the one that we use in our business by filling in the form below.