When we are in the market we often will receive information from the seller on what...
When we are in the market we often will receive information from the seller on what the rent rolls are. Should we use these as our inputs? Should we alter them in any way? Are there alternative ways to determine the market rent?
Homework Answers
No, one should not use the information that one receives from the seller with regards to rent rolls. This is due to the fact that sellers often advertise their property below market rents. This is done by the sellers so as to be able to lure you to base your offer price on potential rental income of the property.
The inputs should be altered by accounting for the discount factor that seller has been using on a historical basis and determining the actual levels of rent that exists in the market. This will ensure that the seller is not able to charge you a higher price for the property by advertising the rent rolls below the market rents.
Alternative ways to determine market rent includes analysis of current leases, verification of rent rolls, going through rental listings in newspaper and online mediums, and make use of experts like real estate professionals and consultants.
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