Does rent increase also increase property value?

Discussion in 'Innovative Techniques' started by andrewtfarr, 17th May, 2015.

  1. andrewtfarr

    andrewtfarr Member

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    Hi All,

    I was watching some Steve McNight videos the other day and he was running some numbers around rental increases. The idea was that any increase in rental yield would also drive the value of the property up.

    The idea being if that you had two identical properties with one renting for 500pw and the other renting for 525pw, that the latter would be the more attractive purchase and as such would be worth more.

    Is this actually the case? Seems to make sense to me...but the real question is:

    Does a valuer actually take rental return into account when performing a property valuation?
     
  2. D.T.

    D.T. Property Lookerafterer

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    If you improve the property, its going to be worth more. Of course. Rent isnt the driver of this though, the improvement is.

    The valuer does ask what it rents for, but seems to count for zip. They're really just looking at what comparable properties recently sold for.
     
  3. pinkboy

    pinkboy SS Lookerafterer

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    Definitely CIP, not so much Resi.

    pinkboy
     
  4. ellejay

    ellejay Member

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    Not necessarily, some variables surely? One set of buyers want to do their own improvements over time and pay less, others want to walk into a house all done. Property is only worth what someone will pay. Some areas have more renters than buyers which pushes up rents but houses can be hard to sell at full 'value'. Depends if you just want to re-value and pull out equity or actually sell it.
     
  5. skater

    skater Capitalist

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    This is a bit of a tricky one. Not usually with residential, however there can be exceptions.

    In some regional areas, the asking price can be determined by the rental yield, however, ask price & sale price are usually different and the actual sale price can depend on how good a negotiator you are, how badly the owner wants the sale and/or how buoyant the market is at the time of the sale.

    I have also seen it come into play by savvy investors when in a buyers market, when a landlord has not increased the rent on their property for some time because they've got a 'good tenant' and the existing rent is significantly under market. The purchaser uses it as a bargaining tool to condition the vendor due to the poor yield. Of course, after the sale, the rents get increased as soon as they are able.

    Not usually!
     
  6. Scott No Mates

    Scott No Mates ...and people wonder why?

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    Market determines the rent, valuer only looks at the rent as to whether it is market or not. On residential property it does not result in an increase in the value as the rent may not be sustainable over the long term.
     
  7. andrewtfarr

    andrewtfarr Member

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    Thanks guys...some good points. I was hesitant to think that an increase in rent would help with a higher valuation when trying to release equity so great to have that clarfied!!!