The Frisco real estate market and the surrounding North Texas suburbs are some of the best in the country to invest in. The area is flourishing and outbuilding the rest of the country. Over 10% of the homes are new, which is the highest in the country. There is also an impressive job and population growth rate.
When you consider the number of new people, jobs, and homes, Frisco rental property and the surrounding neighborhoods are prime for investment. You need to know how to value your rental property to make smart investment decisions.
History of Property Values in Frisco
Since 2010, the median property price in Frisco has risen by 78%. The median price for a home in 2010 was $285,132. Today, the median price is closer to $507,757.
What this tells us is that everything you used to know about the Frisco real estate market no longer applies. You can no longer consider Frisco rental property as the discount real estate market alternative to Plano.
Determining the Value of Your Frisco Rental Property
There are four common methods real estate investors use to determine the value of your Frisco rental property. There isn’t a one-size-fits-all solution, so consider all of these methods when determining the value of your property.
Sales Comparison Approach
This method is most commonly used by real estate agents and property appraisers. To use this method, you’ll compare your property to similar properties that have recently sold or rented. The longer the time period you use, the better idea you can get for emerging trends in value.
Capital Asset Pricing Model
This method uses your potential return on investment (ROI) that you can gain from rental income. Then compare it to other investment opportunities that have lower risks, such as US Treasury Bonds or REITs.
This model has you considering the risks and potential benefits of your investment. If you can incur less risk and greater ROI elsewhere, then it doesn’t make sense to invest in a potential Frisco rental property.
Income Approach
This approach to valuing your property focuses on your initial investment and the potential income generated. Take your expected gross yearly income and divide it by your cost for purchasing the property. Let’s assume you can get $1,200 a month for a home and that it will cost you $450,000 to buy the home.
(1,200 x 12) = 14,400 yearly gross rental income
14,400 ÷ 450,000 = .032 or 3.2%
There is no set percentage you should aim for as every investor has their own income goals and comfort level. You should use this percentage as a piece of your Frisco property valuation.
Cost Approach
This method is most often used for valuing a vacant property. It values the property by combining the land value with the depreciated value of the improvements. To use this method to value your vacant Frisco rental property, you’ll need to consider the most profitable use of the land and the cost to use it in that way.
You may find that the cost to develop and maintain your rental property makes it cost-prohibitive. There could be a better and more profitable use for the property.
Have Help Determining the Value of your Frisco Rental Property
If these methods sound complicated and confusing, then it can help to seek out help. Getting guidance from industry professionals can ensure you use the most appropriate valuation method. They can also help you use the correct data to ensure you come to the right valuation. This will help you make the best decision for your future Frisco rental property investment.
Contact our team today and let our experienced and knowledgeable team help you determine the value of your rental property.
