How to Effectively Assess Property Value for Investment
Real estate investment retains the twin traditional appeals of stability and an almost guaranteed return, but there have been a lot of innovations in recent times that have made it even more worthwhile. The ability to access and analyze data more comprehensively makes it easier to make informed decisions and invest in a diverse range of vehicles. Whichever investment method you choose, however, one constant is that you’ll need to value properties as you work to decide where to put your money. Here are the best ways you can do that efficiently and accurately.
The Sales Comparison Approach
This is the most common approach adopted It’s also important to note that looking at sales prices is a common mistake to avoid. Asking prices and value are not the same thing. You’ll need to go beyond looking at brochures and actually conduct research into public records to find what amounts have been agreed for those properties.
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The Capital Asset Pricing Model
This model takes a big-picture approach to investing and attempts to determine if the risk you’re taking on Once that’s done, you’ll need to calculate the potential rental income and then see what buying price would enable you make more returns than the alternatives. That would then be the value of the property to you, and although it might be vastly different from the seller’s perspective, it’s what you’ll have to work with if you’re to make worthwhile profit from your investment.
It’s also crucial to factor in potential outlays like essential renovations, which can be great investments in themselves. Sean Hayes, general manager of kitchen-and-bath retailer Hausera, confirms that, “We found that homeowners spent an average of $12,800 for their kitchen renovation, $11,100 for their bathroom and $10,800 for their laundry room, and the returns on those investments in terms of increased home value were very significant.”
The Cost Approach
The cost approach involves the estimation of how much it would cost to rebuild the property from the ground up, although there’s often a modification in that the estimate is done The procedure is to estimate the value of the land, assuming it were vacant. This can be done Lastly, you’d need to consider depreciation to factor in how much the value of the property would have reduced over its lifespan. This is usually done using the age-life method, which assigns a potential lifespan and deducts a percentage based on how far along that lifespan the property is.
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Ultimately, you have a range of choices when it comes to valuing property for investmemt purposes. The commomn key is to ensure that you feed in as much accurate data as you can, helping you make better informed decisions on the path to growing your portfolio and profits.