When renting a property or estimating the amount to be paid monthly by the tenant, the term rental amount arises. But what does it mean?

Rental amount, also called rental value, refers to the amount of money one has to pay for the temporary use of particular items, equipment, and services. Generally, your payment occurs weekly, biweekly, monthly or periodically.

Now, it is obvious that one cannot determine the rental amount of a property at random. Furthermore, it can be neither too high nor too low to avoid discouraging prospective tenants and incurring losses for the owner, respectively. The rental value depends on several factors that directly influence its rise and fall. In this article, let’s take a look at what they are.

• Property Market Value

Market value measures the current position and importance of a particular property in the real estate market. Suppose the acreage in question is in an area or neighborhood with multiple public facilities and services, such as subway stations, convenience stores, hospitals, train stations, etc. In that case, it will inevitably be in high demand. These factors would cause prospective renters to appreciate the value of the property, allowing its value to rise on the charts.

On the other hand, elements such as increased pollution levels, decreased security, and stalled infrastructure projects in the vicinity of the property may cause a decrease in its market value. Subsequently, your rental rate or value would also go down.

• current rental rate

It would be surprisingly conspicuous and off-putting to prospective tenants if the rent for a specific property is considerably higher than the rest around it. Too low a price would also put off renters as they would believe something is wrong with it. Therefore, it is imperative to consider the rental rate for the entire area before establishing one for a new home or piece of land.

However, this comparison and reference should only be made and taken from similar properties. For this purpose, the following characteristics can be taken into consideration:

• Number of bedrooms and bathrooms.
• Year of construction and most recent renovation
• Lot Size
• facilities included

Additionally, you must consider the money spent on mortgages, maintenance, taxes and repairs, which owners must pay when the property is vacant.

• Additional services

Properties with additional facilities such as parking spaces, terraces, swimming pools, gardens, etc., will undoubtedly have a higher rental amount. Furnished or semi-furnished houses with closets, fans, storage space, kitchen appliances and beds will cost more rent than unfurnished ones.

• Rental rate

Rental rates estimate the appropriate and acceptable amount of rent that a property occupant can and should pay. It sits at around 2.5% to 3.5% of the market value of the acreage.

However, the rental rate may differ depending on the demand for the property and the supply imbalance. However, the maximum and minimum values ​​should not exceed 3.5% and 2.5% of the market value, respectively.

Ways to Value a Real Estate Rental Property

Mainly, there are five ways to determine the rental amount of a property after considering all the associated factors. They are:

1. The Selling Comparison Approach (SCA)
2. The income approach
3. The Capital Asset Pricing Model (CAPM)
4. The Gross Rent Multiplier (GRM) Approach
5. The cost approach