Rental revenue and house valuation for sale/refinance

[Account Closed]

Say you take your typical 3 br medium sized house that would typically rent for about $1500 and because of room conversion (like converting the living room/dining room/rec room/laundry room/den/etc) you now have a 6 br house and you're now getting double that and have months of proof of that.  Or years. 

Would an investor pay much more for this knowing you've just cleverly managed the space and the house itself really isn't much different from when you bought it?  

What about a bank?

Would anyone value it more for the revenue?  Isn't that what people buy businesses for in the first place? For instance in my area that typical 3 br house would sell for about $250,000.  And it would rent for about $1500.  And rooms here rent for about $500.  6 x $500 = $3000 or $36,000/annually.  At a 10% cap rate (omitting expenses which would be mostly shared) that $250,000 house is now $360,000.  Isn't a 10% cap rate particularly generous?  Wouldn't most investors jump at that?  I hear banks just look a appraised value which seems particularly short sighted.  Maybe other lenders loan on revenue more?

[Chris Davidson]

Quote from @Account Closed:

So another way may be to use that huge rental revenue as personal income to qualify for a higher mortgage.  I wonder if many people do that and if its anywhere near as good as simply getting the house valued higher?  And if the house is valued higher by the bank does that info get to the city which might raise annual taxes?  I posted about the federal tax department possibly informing the city of rental revenues from their houses, wondering if that ever happens.  What do you think?  You'd think they would share info but I haven't heard of this before.  

 Government agency's aren't know for good communication, so if the IRS was communicating with the local muni on revenue a property was getting that would be a first. Also banks aren't going to go the muni and say we think this house is worth more you need to charge more in taxes. For the most part people stay in their lane.

There are a few ways a bank looks at value, mainly through an appraiser who tells them what it is worth by either doing cost, revenue, or market. For revenue they run numbers as Long term rentals as they have to provide evidence for how they got to that number. Market they will look at similar houses that have sold recently. If you have a few years of tax returns showing where you made 36k on your property they would count that as income to boost your DTI.