When putting a rental property up for sale, there are several factors that will come into play when determining the right listing price. In fact, in some ways, the proper pricing of a rental property can differ from coming up with the price of a primary residence. This is due in large part to the income component of the investment property.
In this case, sellers may oftentimes focus on the gross rent multiplier. This is a valuation method that looks at the property relative to the rental income that it’s bringing in. In order to calculate the gross rent multiplier (or GRM), simply divide the price of the property by its annual rental income.
As an example, if a home rents for $12,000 per year and the comparable homes around it are valued at $120,000, then the GRM will be 10. This is derived by dividing the $12,000 in yearly rent by $120,000.
But you can also determine the value of the home by calculating the gross rent multiplier in “reverse”. In this case, take the home that is renting for $1,000 per month in an area where the average gross rent multiplier is 10, and then multiply the monthly rent by 12 in order to come up with the annual rent of $12,000. Then, take that figure and multiply it by the gross rent multiplier of 10. This will give you the value of $120,000.
Whether you decide to move forward with the sale of your income property, or hang on to it for the long term, having a property manager in place who takes care of the day-to-day tasks can be extremely beneficial.
For instance, allowing a potential buyer to walk into an already cash-flowing situation, where they also don’t need to spend a lot of time on the ongoing details such as maintenance and tenant management, may make the difference between selling the property quickly, or having it sit on the market for a while.
For more information on the benefits of partnering with an experienced property manager in Orlando and the surrounding area, give us a call today.
