Rental Value

Rental value is the open-market rent a typical tenant would pay for a property, regardless of what the current lease says. Appraisers build NOI on market rent rather than contract rent, so rental value decides the cap rate a buyer or lender will actually see.

A unit leased at $3,600 in a market where similar units rent for $4,000 is under-rented by $400 a month. At the example's expense levels, each $100 of monthly rent adds about $935 of NOI, so the gap is worth roughly $3,700 a year of NOI and about $65,000 of value at a 5.78% cap rate.

That is the upside a buyer pays for when a seller advertises below-market rents. It only turns into income when leases roll over and the rent can legally be raised. Check the lease terms and any local rent control before counting on it in the purchase price.