A rental value calculated after looking at similar properties in a specific locality is the fair rental value of a house. So, why do you need to know this? Knowing the fair rental value ensures that you set your house for rent at its correct value to get good profits, yet don’t overshoot the price to drive away prospective renters. Read ahead to know how to calculate the fair rental value of a home.
Page Contents
- How To Calculate The Fair Rental Value Of A Home?
- 1. Check The Rental Yield To Calculate Fair Rental Value
- 2. Calculate Rent Per Sq. Ft. Of Carpet Area
- 3. Compare Rental Rates In Your Location For Fair Rent Calculation
- How to Calculate Property Value Based On Rental Income?
- Rental Yields Across 8 Major Cities In India
- How To Calculate Fair Rental Value, FAQs
How To Calculate The Fair Rental Value Of A Home?
Here are the top 3 ways you can use to calculate fair rental value of your home –
1. Check The Rental Yield To Calculate Fair Rental Value
A rental yield is the percentage of the property value that you may earn from its yearly rental returns.
This figure indicates the rental profits you could generate from your home.
To earn reasonable profits, the rental yield should be between 3 to 4% of the market value of your residential property.
So, if your property is worth 80 lakhs, its annual rent will range from INR 2 to 3 lakhs, with monthly rent ranging from 16,600 to 23,300.
To calculate the fair rental value of your home – you must set the rental rate as per the demand and supply equation in your locality.
If the demand is high for rental homes but supply is low in your area – you can set the rental rate at 4% but not exceed it.
However, if the demand is low, then you should set the rate at 3%.
2. Calculate Rent Per Sq. Ft. Of Carpet Area
Another way to calculate fair rental value is to derive the rent as per carpet area in your locality.
Note – For this, you must consider homes in your area that match yours in terms of features, amenities, layout, and such.
Consider a case where you want to rent out your furnished 1 BHK, which has a 700 sq ft carpet area.
You look for similar homes in your area and find a 1 BHK with 650 sq. ft. which has a monthly rent of INR 25,000 in your locality.
You can use this to calculate the fair rental value of your house, let’s show you how!
| How to calculate rent as per rent per sq. ft. in a locality | |||
| 1. | Calculate the rate per sq. ft in your area | Divide the rent of 1 BHK by its carpet area | 25000 ÷ 650 = Rs 38.46 per sq. ft. |
| 2. | Calculate the fair rental value of your home as per the rate | Multiply the carpet area of your home with the rate per sq. ft. | 700 x 38.46 = Rs. 26,922 |
| The Fair Monthly Rent of your home as per your locality would be around Rs. 26,922/- | |||
3. Compare Rental Rates In Your Location For Fair Rent Calculation
One of the best ways to do this is to check multiple home listing sites online.
You can enter your sub-locality and browse for similar properties that are being rented out.
This would give you a general idea of the rental costs in your area.
Here are a few things to keep in mind while comparing rental rates for fair rental value calculation.
1. Search for similar properties in your sub-locality.
If you want accurate rent rates for a semi-furnished 1 BHK in a housing complex, search for those only to narrow down the fair rental value of your home.
2. Consider location infrastructure
This includes connectivity routes and the kind of infrastructure being offered to the renter.
For example, if your building is near good infrastructure such as a railway station, the rent would be higher.
3. Check rental price trends in your area
Check the rental price trends in your area over the years.
The information is easily available on home listing sites today and it will help keep an eye on the rental price appreciation in your locality.
It allows you to predict how much the fair rental value of your home could increase in the future.
While there is no exact formula, you can use these 3 ways to get the most near value to easily calculate fair rental value of a home as per your specific locality.
How to Calculate Property Value Based On Rental Income?
For the residential sector, the rental yield for good returns should be between 3 to 4%.
If you’re looking to buy a property but want an idea as to how much it should cost you, the rental yield method can be reliable for you.
Property Value = Annual Rent ÷ Rent Yield
Here are the steps to calculate the property value from rental yield –
1. Check the average rent in your preferred locality. Let’s say that the monthly rent here is INR 30,000/-, which would be INR 3,60,000/-
2. You can first check the property value by taking the rental yield as 3%
Property Value at 3% = 360000 ÷ 3%
= 360000 ÷ 0.03
= 1,20,00,000
3. Then, check the property value by taking the rental yield as 4%
Property Value at 4% = 360000 ÷ 4%
= 360000 ÷ 0.04
= 90,00,000
This means that the property you have an eye on would cost you between 90 lakhs to 1.20 Crore.
You can also easily check the rental yields for your locality and calculate an even more accurate property value based on rental income.
Rental Yields Across 8 Major Cities In India
| City | Rental Yield in % |
| Mumbai | 2.45 |
| Bangalore | 3.50 |
| Delhi NCR | 2.80 |
| Ahmedabad | 3.25 |
| Pune | 3.10 |
| Chennai | 3.10 |
| Hyderabad | 3.16 |
| Kolkata | 3.97 |
How To Calculate Fair Rental Value, FAQs
| What is meant by the fair rent value of a property?
A fair rent value is a rent cost generated by looking at similar properties in a particular locality. |
| How to calculate the fair rent value of a flat?
You can calculate the fair rental value by per square feet. For example, the rental cost of a 1 BHK with a 650 carpet area in your locality is 25,000. So, its rental value will be 25000 ÷ 650 = Rs 38.46 per sq.ft. You can then multiply the carpet area of your own property with the rent per sq.ft. to calculate the fair rent value. Let’s say you own a home of 700 carpet area, its rental cost would be 700 x 38.46 = Rs. 26,922 |
| How much rent should I charge for a residential property?
For a residential property, you should charge a rent of 3 to 4% of the property’s market value. |
| How to increase the rent of my property?
A few ways to increase your home rent are to upgrade the furnishings of your flat, set a lower rental deposit, and charge a fair yet profitable rent increase on lease renewal. |
