Rental Value

Rental value is the rent a property would command on the open market today, as opposed to the rent a current lease happens to pay. It is the top line of any NOI calculation. An NOI built on below-market rent understates the property, and one built on an aspirational rent overstates it.

The default house uses $2,500 a month, which is $30,000 of gross scheduled income and, after 5% vacancy and $10,230 of expenses, $18,270 of NOI. If market rent is really $2,700, the extra $200 a month adds about $1,870 of NOI and $28,800 of value at 6.5%. If the tenant is paying $2,300 on an old lease, the property is worth less on paper than it will be at renewal.

Appraisers and lenders check rental value against comparable listings, not against what the seller says. For a vacant unit, use three or four current comparables and take the middle. The Wikipedia article covers the same idea from the landlord and tax-assessment side, where rental value also sets ground rents and some property taxes.

Further reading: Rental Value on Wikipedia.