Every decision that matters — buy, sell, refinance, insure — leans on figuring out what the rental property is actually worth. There are three standard ways to get that estimate, and knowing which one applies keeps you from anchoring on the wrong number.
Sales comparison
Find recent sales of similar properties nearby and adjust for differences in size, condition, and location. This is how appraisers value 1–4 unit residential properties, because small-property buyers include homeowners who don't price on income. If your duplex sits in a neighborhood of owner-occupied duplexes, comps rule the valuation whether you like it or not.
Income approach
Value = NOI ÷ market cap rate. A property producing $24,000 NOI in a market where similar buildings trade at a 6% cap is worth about $400,000. This dominates for 5+ unit and commercial buildings, where every buyer is an investor. Its power for you: improving NOI directly creates value — $2,000 of added annual NOI at a 6% cap is roughly $33,000 of value.
Cost approach
Land value plus what it would cost to rebuild, minus depreciation. Mostly used for insurance and new construction; rarely decisive for older rentals, but a useful sanity bound when the other two methods disagree wildly.
Worked example
A triplex has $27,000 NOI; local small multifamily trades around a 6.5% cap → income value ≈ $415,000. Three comparable triplex sales closed at $390,000, $405,000, and $430,000 → comp value ≈ $408,000. The two methods agree within a few percent, so $400,000–$420,000 is a defensible range. Price your decision on the range, not a single point.
When this rule of thumb breaks
Comps break in thin markets — three stale or dissimilar sales can swing the answer 15% either way. The income approach breaks when NOI isn't stabilized (mid-renovation, half-vacant) or the cap rate is borrowed from a different class of building. And no method captures a motivated seller, a zoning change, or development potential. When methods disagree sharply, that gap is information: dig into why before you transact.