The Fair Rental Value (FRV) is a crucial metric for real estate investors and property owners. It represents the annual income a property can reasonably generate if rented out, considering its purchase price and the costs associated with owning and maintaining it, while also factoring in a desired return on investment.
Why is Fair Rental Value Important?
Investment Decisions: Helps determine if a property purchase is financially viable and will meet investment goals.
Valuation: Assists in assessing the potential income-generating capacity of a property in the current market.
Lease Negotiations: Provides a data-driven basis for setting rental rates.
Tax Purposes: Can be used in certain jurisdictions for property tax assessments or income reporting.
How the Fair Rental Value is Calculated
This calculator uses a common formula to estimate the fair rental value:
Formula:
Fair Annual Rental Value = Property Purchase Price + Total Annual Operating Expenses + (Property Purchase Price * Desired Annual Return on Investment / 100)
Let's break down the components:
Property Purchase Price: The initial cost of acquiring the property. This is the capital invested.
Total Annual Operating Expenses: These are the recurring costs of owning the property, such as property taxes, homeowner's insurance, routine maintenance, property management fees, and any other ongoing expenses. These costs need to be covered by rental income.
Desired Annual Return on Investment (ROI): This is the profit the investor aims to make on their initial capital investment each year, expressed as a percentage. It's the component that ensures the property generates income beyond just covering its costs.
Therefore, the estimated Fair Annual Rental Value for this property would be $330,000.
Note: This calculated value serves as a benchmark. Actual market rental rates, property condition, location, and local demand will ultimately influence the achievable rent.
function calculateFairRentalValue() {
var propertyCost = parseFloat(document.getElementById("propertyCost").value);
var annualOperatingExpenses = parseFloat(document.getElementById("annualOperatingExpenses").value);
var desiredAnnualReturn = parseFloat(document.getElementById("desiredAnnualReturn").value);
var resultValueElement = document.getElementById("result-value");
var resultUnitElement = document.getElementById("result-unit");
// Clear previous results
resultValueElement.textContent = "–";
resultUnitElement.textContent = "/ year";
// Input validation
if (isNaN(propertyCost) || propertyCost <= 0) {
alert("Please enter a valid Property Purchase Price.");
return;
}
if (isNaN(annualOperatingExpenses) || annualOperatingExpenses < 0) {
alert("Please enter a valid Total Annual Operating Expenses (can be zero but not negative).");
return;
}
if (isNaN(desiredAnnualReturn) || desiredAnnualReturn < 0) {
alert("Please enter a valid Desired Annual Return on Investment percentage (cannot be negative).");
return;
}
// Calculate the desired return amount
var desiredReturnAmount = propertyCost * (desiredAnnualReturn / 100);
// Calculate Fair Rental Value
var fairRentalValue = propertyCost + annualOperatingExpenses + desiredReturnAmount;
// Display the result, formatted as currency
if (!isNaN(fairRentalValue)) {
resultValueElement.textContent = "$" + fairRentalValue.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
} else {
resultValueElement.textContent = "Error";
}
}