How to Get Your Rental Property Valuated (Fair Market Value)

1. Ask a Realtor Friend (If They Have Experience)

Got a friend in real estate? You might be able to save some money by asking them to give you an informal assessment. Realtors often have local market insights, access to recent sale prices of similar properties, and an understanding of property trends. If they’ve done market valuations before, they can give you a reasonable estimate of your rental property's worth.

However, and this is a big however, make sure your realtor friend has experience in valuating properties. If they’ve never done a property valuation or aren’t confident in their assessment, you may want to ask someone else or choose a more official route.

Why Choose This Option:

• It’s a free or low-cost option.
• Great for informal estimates if you trust their experience.

Potential Downsides:

• May lack the accuracy or legal backing needed for official purposes like tax reporting.
• Could strain your friendship if you rely on their opinion and it turns out to be inaccurate.

2. Hire a Certified Property Appraiser

When you need a precise and legally sound valuation, hiring a certified property appraiser is the gold standard. Property appraisers are trained professionals who conduct thorough assessments using industry-approved methods. They look at factors like your property’s condition, location, comparable sales, and other market data to determine the fair market value.

Appraisers typically provide a formal report, which is especially helpful for tax purposes, mortgage approvals, or if you're selling the property. The CRA is more likely to accept valuations done by certified appraisers than informal estimates.

Why Choose This Option:

• Provides an official, detailed report that can stand up to CRA scrutiny.
• Ensures accuracy based on professional experience and data.
• Necessary for formal scenarios like audits, legal purposes, or mortgage renewals.

Potential Downsides:

• It’s the most expensive option, often costing several hundred dollars.
• Can take time to arrange and complete.

3. Do It Yourself (DIY Research)

If you’re a hands-on person who loves digging into real estate data, you can try to estimate your property’s value yourself. Start by researching recent sales of similar properties in your area, known as "comparables" or "comps." Websites like Redfin, Realtor.ca, or even local property listings can give you a ballpark figure based on what similar rental properties are selling for.

You’ll want to compare properties based on size, location, condition, and age. Adjust your estimate accordingly for things like renovations or market trends. Keep in mind, this DIY method is less reliable and more subjective than hiring a pro, so while it’s good for getting a rough idea, it may not hold up if the CRA comes knocking.

Why Choose This Option:

• It’s free and gives you control over the process.
• You can learn a lot about your local market in the process.

Potential Downsides:

• The CRA may disagree with your valuation, and you might end up needing to hire an appraiser if audited.
• Accuracy can vary widely depending on the quality of your research and comparisons.

Important Note: If the CRA audits your return and finds your valuation inaccurate, they may reject your DIY estimate, and you could face fines, reassessments, or interest charges. Be prepared to back up your research or pay for an appraiser if needed!

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Bonus (Option 4) Ask Your Bank During Mortgage Renewal

Another often-overlooked option is asking your bank for a property valuation when you’re renewing your mortgage. Banks regularly conduct appraisals to determine a property’s current value, especially if you're refinancing or renewing a mortgage. They may do this in-house, or they might hire an appraiser on your behalf.

While this option is convenient and gives you an accurate estimate for financial purposes, note that this valuation might only be valid for the bank’s purposes. It might not be comprehensive enough for CRA or legal reasons, so always check what’s included in their assessment.

Why Choose This Option:

• It’s usually free or part of your mortgage renewal process.
• Provides an accurate estimate used by financial institutions.

Potential Downsides:

• The valuation may be more conservative, as banks often aim to minimize their risk.
• It might not be sufficient for tax purposes if the CRA asks for a more detailed appraisal.

Conclusion: Choose the Right Method for Your Needs

Getting your rental property valuated at fair market value doesn’t have to be complicated, but choosing the right method depends on your specific needs and how accurate the valuation needs to be. If you’re just looking for a ballpark figure, asking a realtor friend or doing some DIY research might suffice. But for legal or tax purposes, hiring a certified appraiser or consulting your bank during a mortgage renewal is the safer bet.

Make sure to weigh the pros and cons of each option, especially if you anticipate needing to provide proof of your property’s value to the CRA or other official institutions.

FAQs

1. How often should I get my rental property valuated?
   There’s no set rule, but it's a good idea to get an updated valuation when the market shifts significantly or if you're planning to sell or refinance your property.
2. What happens if the CRA disagrees with my DIY valuation?
   If your DIY valuation is significantly off, the CRA may reassess your taxes, leading to fines, interest, or additional tax liability. Hiring an appraiser can help avoid this risk.
3. Can I deduct the cost of a professional appraisal on my taxes?
   If the appraisal is required for tax purposes or property sale, you may be able to claim it as a deductible expense under certain circumstances. Consult with a tax professional to confirm.
4. Is a bank valuation during mortgage renewal enough for tax purposes?
   A bank valuation might not be sufficient for CRA audits, as it's usually conducted for the bank's own lending purposes. You may need a more detailed appraisal for tax reporting.

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For anyone stepping into the world of real estate, understanding these nuances can save you a headache come tax season. Whether you're an occasional seller or growing a profitable business, staying informed is your best strategy.

For more information, consult Canada.ca and if you’re looking for a CPA in Ottawa, please don’t hesitate to reach out.

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This is not legally binding tax advice. This is educational analysis. Say hello if you need help.

hello@taxesmadesimple.ca

WhatsApp - 613.600.4194

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