How do lenders value potential rental yield?

When it comes to establishing the value of residential investment properties, there are three possible approaches that are used.

Lenders will use the approach that fits their underwriting standards:

1.    The Sales Comparison

This approach determines the value based on comparable properties in the same area and the price they sold for in the past three months.

2.    The Cost Approach

This approach determines how much it would cost to replace the property if it had to be rebuilt from scratch. This is sometimes referred to as the "reproduction cost” or "replacement cost”. This method can be varied. Dependant on whether or not a property is rebuilt to the same specifications.

3.     The Income Approach

This approach incorporates income derived from the property (or potential income) as a method to identify the market value of the property.



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Jason Gwerder
Tuesday, 3 December 2019

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