How to Assess Property Value: Looking Beyond Up Front Costs
By: Catherine West
In assessing property value, reframe your thinking. Don’t focus on how much it costs. Focus on how much you can make.
Think of the real estate market a triangle. The key drivers are employment growth and diversification (want a diverse economic base), population
growth and median income.
When all three indicators are growing, demand for quality property increases.
Identify investments that are on the path of progress. That might include such desirable factors as being near public transportation.
Estimate the costs of repairs and renovations, now and in the future, and include reserves when you are doing cash flow analysis
Consider the Fair Market Rent Value. Can you increase the rent now or in the future if the market improves and/or you rehab the property?
A rent assessment should include:
If you’re looking to assess a property, give us a call. We’d be happy to walk you through the process.
In assessing property value, reframe your thinking. Don’t focus on how much it costs. Focus on how much you can make.
Think of the real estate market a triangle. The key drivers are employment growth and diversification (want a diverse economic base), population
growth and median income.
When all three indicators are growing, demand for quality property increases.
Identify investments that are on the path of progress. That might include such desirable factors as being near public transportation.
Estimate the costs of repairs and renovations, now and in the future, and include reserves when you are doing cash flow analysis
Consider the Fair Market Rent Value. Can you increase the rent now or in the future if the market improves and/or you rehab the property?
A rent assessment should include:
- Cost of financing, either through a mortgage or private lenders. Some investors tend to underestimate this or leave this out of their calculations.
- Carrying costs. If you need to rehab the property and it will be vacant and not making money. Include the cost of money; taxes; insurance; and utilities.
- Vacancy allowance. Even in markets with high demand, always factor in vacancy for buy-and-hold investments.
If you’re looking to assess a property, give us a call. We’d be happy to walk you through the process.