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How do you account for land value in rent vs. buy?
invite response
2012 Nov 3, 11:11pm 1,781 views 3 comments
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The parameters that you left out are too important to even give a semi-accurate answer to.
Patrick
2012 Nov 4, 1:51am
If you know you could profitably build and rent out for much more money on that land, then you should use that higher rent.
Use the rent you could get when calculating what a fair price should be, not an artificially low rent.
That's all there is to it.
David Losh
2012 Nov 4, 1:44am
Excellent question and one that is becoming increasingly a factor here in Seattle. There are lots that have bigger sizes that can be divided up in a variety of ways. Some are double, and triple lots, but we also have building codes for cottages, and group homes to a lesser extent.
These properties rent for the price of the structure rather than the land.
So on a double lot the lot value is set by what you can build and is added to the price, or value of the rental.
It's a complicated part of the Real Estate business and there are people who only do dirt.
If you have a broken down shack that rents for $1k per month, but its sitting on a 2 acre lot.
It will sell for much more than the rental value. This is why rental value analysis doesn't work unless you plan to use the house as a rental.