Rental Value

Rental value means what the open market would pay to rent a property right now, which can differ from whatever an existing lease says. 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 $4,000 a month, which is $48,000 of gross scheduled income and, after 5% vacancy and $16,708 of expenses, $28,892 of NOI. If market rent is really $4,200, the extra $200 a month adds about $1,870 of NOI and $28,800 of value at 6.5%. If the tenant is paying $3,800 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.