Renting a property is a very complex decision. It not only dictates tenant attention, but also dictates the potential profit. According to Jagmohan Garg, a Delhi-based realtor, it is important to price the property appropriately to make decent profit in the longer run. One must also valuate the property before renting or selling.
If the property is rented higher than the original market value, one may receive more profits per tenant. However, it can impede the interest of prospective tenants, which can result in high vacancy rates. On the other hand, a low rent may lead to lower profits, but will certainly deter tenants. When the rent is low, tenants tend to assume that the property has some limitations, which makes it important to keep the price in the middle range.
There is no shortcut to find the fair market value of a property. D Mall owner, Jagmohan Garg lists some steps to help you calculate the fair market value before renting your property:
- A comparative market analysis: It involves analyzing the prices of similar properties in your area. If you are intending to rent out a property, it is important to make adjustments to your price after a thorough comparison with other properties. But, one must consider the fact that no two properties are completely identical. Every property has its own benefits and limitations.
- Seeking help from a professional appraiser: A professional real estate agent not only conducts a physical inspection of the property, but also examines it from the construction point of view. He can also conduct a comparative market analysis and compare the physical aspects of the property as well.
- Computing the rental yield of property: The rental yield is a percentage of the annual income of a property, divided by its cost and multiplied by hundred. In order to know how much income one can receive by renting a property, it is important to know the rental yield. Apart from this, one can also compare the rental yield of his property with other properties to know the market value.
Some people rent their properties for a lower price than the original market value as a goodwill gesture to their friends or relatives. But, this goodwill gesture is always at the expense of their investment. According to Jagmohan Garg, renting a property below the market value disqualifies you from receiving certain tax benefits. So, it is important to adhere to some guidelines before renting the property for a certain price. Both the short-term and long-term benefits must be assessed to earn profit according to the potential of a property.