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Please forward this error screen to sharedip-2322922268. 47 0 0 0 13 6. Q: I want to invest in a rental property. Is there a formula I can use to determine the value of a building based on the rent it takes in? Brooklyn Law School professor David Reiss. Start with your gross rental income, which is simply the total of one year’s worth of rents for all of the units combined. It’s safest to use existing rents, but you can conservatively increase the amounts if you are planning to improve the units and raise rents.

Read Next: Can Rental Income Save Your Retirement? Also, the cap rate assumes a cash purchase. So in that case, he suggests also calculating your return on upfront costs. Again, you need to consider the relative risk of the particular investment property to determine whether that payback rate is high enough. Look at several properties to get a better feel for how the risks and rewards compare. Read Next: Should You Buy An Investment Property? Neither analysis considers the other big benefit of an investment property: appreciation.

You’re building equity in a building that could potentially grow in value over time. But it’s better not to count on equity growth in your analysis, says Reiss, because it’s by no means guaranteed. It depends in part on the quality of the property as well as on a host of unpredictable macroeconomic and neighborhood trends, he notes. Moreover, it will likely require holding the property for 10 or more years, and both the cost of selling and capital gains taxes will slice into your equity growth. Money may receive compensation for some links to products and services on this website. Offers may be subject to change without notice. Quotes delayed at least 15 minutes.

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