Crucial part in making an investment decision is the conduction of efficient property evaluation. Property evaluation plays an inevitable key role in any property related investment decision making. One of the major reasons for this is that investors cannot gain the same yield from every rental property, Even though any two properties appear to look similar from external factors, the need for property evaluation is vital before making a decision to buy it. The value or worth of the property determines the ultimate choice of property investment. Usually, it is considered by making sure to check whether any other property has been sold in that particular locality and jump into conclusions from that single criteria. But unfortunately, such vague analysis might end up adversely affecting your business and property valuation is never quite straight forward. It requires a systematic analysis, considering various criteria and levels of analysis and evaluation.
For buyers, a thorough property valuation provides information on the current real estate prices and the market trends.It also helps finding out various advantages and the buyer gets to know about the possible challenges and disadvantages before making the decision to buy any property. This helps the buyer to make precautions and carefully make a proper decision regarding the investment, thereby avoiding any mistakes and terrible bargains.
Major aspects in property evaluation include financing, investment analysis, sales listing, property insurance and taxation. There are certain basic concepts and methods which need to be aware of before getting involved with property valuation and investment decision making. Before beginning your property valuation, it is important to understand where the journey begins. Let us understand the process, as well as the terms and factors involved.
WHAT IS PROPERTY EVALUATION?
In layman’s terms, property evaluation simply means the calculation that real estate investors and buyers use to decide or determine the ultimate value of the property. Using specific data, systematic methods and analysis of market trends, property evaluation can be conducted by investors, along with the guidance and assistance of licensed appraisers and by Real Estate brokers with a BPO (Broker Opinion of value).
WHAT IS MARKET PRICE?
It is simply the fair price at which a property can be sold during a specific time.It is estimated according to the local real estate market, supply and demand.
FINANCIAL TERMS REQUIRED FOR PROPERTY VALUATION:
Every investor need to aware of the following financial data before calculating property value:
● Mortgage payment
● Down payment amount
● Rental income
● Price to income ratio
● Gross rental yield
● Capitalization rate
● Cash flow
SOME MAJOR FACTORS AFFECTING PROPERTY EVALUATION:
Property valuation considers several factors which influence the value of a particular property and determines its potential in the market.
● Property Size and Floor plan:
One of the most commonly used criteria or metrics in property valuation is the price per square foot of the property.
Since an exit strategy may call for selling the property to an owner occupant and not another investor, it is important to calculate the property size and floor plan even though calculations like ROI and cap rate are involved. Apart from the square foot rate, the number of bedrooms, bathrooms and general floor plan also after the value of the property. The size of the house alone does not determine the better value to an investor. It has to be convincing to the market and target renter.
● Property Improvements
If the property owner has made improvements for a single-family renter, it could be a great deal for the buyers. Improvements have a positive impact on the property value, considering the amount of money spent on the improvement.
● Property Condition
Delayed replacement of items such as roofs, heating systems , an obsolete floor plan etc could adversely affect the property value since extra money is needed for further updating ofthe property.
● Age of the Property
Comparatively, new properties have more demand than older properties , which require morerepairs and improvements for the future.
● Market Conditions
When there is an imbalance in supply and demand, it will definitely affect the property value. This occurs when there is a situation in the seller’s market where the number of buyers exceeds the number of sellers.
● Property Area/Neighborhood
The condition of the property neighborhood has a direct effect on the property value. Areaswhere there is high criminal activity and grafiti, or generally, an area with a neighborhood that has been in decline can reduce the rent to attract tenants. This might eventually result in negative cash flow.
Meanwhile, if the area of the property is adjacent to schools of employment districts, areas offering shopping amenities and recreation facilities, then the demand and the value of the property increases.
Location is the most common factor that investors consider while making a propertyinvestment decision. The rental tax rates, ret control and job growth in the location, along with the factors like the chances of location getting affected by natural calamities etc reflects on the value of property.
REALITY CHECK WITH PROFESSIONAL GUIDANCE
A Licenced appraiser or a professional property evaluator can guide the investor in making the right choice of property. Seeking such professional guidance not only helps in selecting the right property, but it also helps in reducing mistakes and avoiding wastage of money and time. Such professionals will help an investor understand the nooks and crannies about the property and help to make the financial decisions more effectively in an inexpensive manner. The unnecessary involvement of a third party with no skin in the game can be completely avoided when you hire a professional appraiser.They also have access to market-specific data which might be difficult to fetch by a common investor who is unaware of certain major factors affecting the market value of the property. They guide to compare the recent sales, property conditions and other amenities related to the property. It is always an economical and productive option to take assistance of a professional appraiser while making property investment decisions.
Mena is a leading company that provides various professional services in business & investment management. With an experienced & capable team to advise & create solutions for all management departments, we produce optimum results. We consider the economicand social trends, governmental controls or regulations and environmental conditions to knowtheir demand, utility & scarcity before buying or selling a property.We examine the property’spotential & enhance the Client’s success.
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