5 WAYS REALTORS DETERMINE RENTAL PRICING

SALES COMPARISON APPROACH (SCA)

This approach is simply a comparison of similar homes that have sold or rented locally over a given time period.

CAPITAL ASSET PRICING MODEL (CAPM)

This model looks at the potential return on investment (ROI) derived from rental income and compares it to other investments that have no risk.

Income Approach

The income approach focuses on what the potential income for rental property yields relative to the initial investment. The income approach is used frequently for commercial real estate investing.

GROSS RENT MULTIPLIER APPROACH

The gross rent multiplier (GRM) approach values a rental property based on the amount of rent an investor can collect each year.

COST APPROACH

The cost approach to valuing real estate states that property is only worth what it can reasonably be used for. It is estimated by combining the land value and the depreciated value of any improvements.