Fair Market Value Of Rental Property

“There's no way that I'm going to pay $1,400 per month for that rental,” I recently overheard an applicant tell a property manager. “It's only got two bedrooms and one bathroom. It's on the third floor and not easy to access. I could rent a house for $200 less per month and have more space.” The biggest issue that property managers and landlords face is renting their property at a fair market value. That can be one of the hardest numbers to find because everyone feels like their property should achieve a maximum amount of value so that profits from that property can be realized. If you have an older home or small apartments, however, you just can't rent at executive level prices and expect high occupancy rates. What can you do? And how can you make sure you're claiming the fair market value of your rental property? Let's take a look.

Your First Stop Should Be At Your County Assessor

Your local property tax assessor is going to have the established fair market value of your property on file. This figure is used in order to determine what your yearly tax responsibilities will be based on the local levies. You might even be able to access this information online if your assessor's office has a searchable website. You'll also need this figure in order to claim the value of your asset when tax season comes along. Your land and the structures on that land together make up the allocation of your cost that must be claimed when you put in your rental income.

You'll Also Need To Figure Out Depreciation

Only a percentage of your property is going to qualify for depreciation. Land itself does not depreciate, but the structures can be depreciated over a 27.5 year period. Most assessors will split the land and structure value up on their worksheets, but if that hasn't happened, you can figure out the amount of the structure valuation by finding your land value. Certain items within the home also depreciate over different periods of time. Let's say you upgraded your rental property with new paint and new carpet. The paint will depreciate over a 3 year period in most instances, but the carpet cost will depreciate over 5-10 years based on the quality of carpet you've installed.

What About Fair Market Rental Value?

To determine if the amount you need to charge for rent corresponds with what your local market will accept requires you to do some research. Websites like Zillow and Realtor can be helpful in this matter, but they won't take into account the local applicants who have certain expectations like the one I overheard. You may need to meet with other landlords, look at local available listings, and speak with property managers to find the right balance of cost and profitability. It is possible to find the fair market value of rental property without too much effort. Follow these steps and you'll have the numbers you need.

Posted on Sep 22, 2014


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