How Rental Rates Help Determine a Property’s Value

Property value is something that can be determined by several factors. From curbside appeal to the rise of surrounding, booming neighborhoods, many things can lead to an increase in property value for commercial rental properties.

Possibly the biggest factor in determining a rental property’s value is its rental rate and the income that comes to the landlord. It is important to understand how to calculate the Income Approach to Value when trying to predict your next year’s property value and bill. A Dallas property tax consultant will be able to help you navigate the tax process, but here are some of the basic ideas of this valuation method and how rental rates can impact your property taxes.

Property Value and Your Rental Rates

Determining how rental rate impacts your property’s value is actually quite simple. The higher your rent, the higher the property value. Property value directly impacts how much you pay every year on your property tax statement.

So, it is always a plus if you can prove that income, after expenses is relatively low. This proves a lower value and makes your property tax bill more manageable. By working with a property tax consultant, you can bring them your expense records and past property taxes, so that they can help you prove a lower income on this commercial rental property.

How to Determine the Income Approach to Value

The Income Approach to Value is the method that most rental and business property tax consultants use to help appraise the current value of a property. The way this is done is by taking the net operating income of the collected rent on a commercial property and dividing it by the capitalization rate.

The capitalization rate is the rate of return that is seen on a commercial rental property based on how much income said property generates.

Once this is calculated, then the income approach is complete and the value of the property can be accurately assessed.

Determining Property Value Via Capitalization Rate

The net operating income can be determined by using the market sales and rental rates of comparable properties. This is called the capitalization rate. For example, if trying to determine the value of a rental home with 2 bedrooms and 2 baths, an assessor would merely have to look at recent rental rates or selling prices of similar properties in the county.

This is yet another way that rental rates can have an impact on property value.

Still Have Questions About the Income Approach to Value? The Hegwood Group Can Help!

We understand that running a commercial rental property can be confusing; especially when it comes to determining your property value each year. Don’t give yourself a headache crunching the numbers. Let The Hegwood Group do it for you. Our team of expert property tax consultants understands the Income Approach to Value and how to estimate your property’s value based on rental rates. Get in touch with us today to find out more about our services, experience, and how we can begin to save you money on your property taxes.

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