Once you’ve found the ideal investment property and approved its validity for your investment goals, you need to evaluate the property values. Be sure to do your own research. You can easily lose everything you’ve worked hard for if you determine the property values purely by the word of the seller or the county tax office.
The following assessment methods will enable you to get a better idea of the actual value of the property prior to your purchase.
The Comparable Sales Method to Determine Property Values
The comparable sales method is the most popular for determining the property values of single family homes and buildings with less than 5 rental units. Go to the local county courthouse and research how much similar houses in the same area have sold for recently. There are also many realtors that will offer their assistance, and you can do some research online as well. Be sure to account for any difference in amenities between the properties. A great way to do this is to merely divide the sales price by the square footage of living space.
The Replacement Cost Method to Determine Property Values
A less common method of determining property values is to estimate what it would cost to build the exact same property from scratch. Remember to include costs for materials, labor and property depreciation for the most accurate assessment. The easiest way to get accurate figures is to call a local contractor and ask how much they would charge per square foot to build a home in the area of your subject property.
Income Valuation Method to Determine Property Values
Last but not least, we have the income valuation method of determining a property’s value. This style is better suited to commercial properties, including apartment buildings with more than 5 rental units. It’s really easy: figure out the gross annual income and subtract the property’s annual expenses, multiply the result by 10 and you have an estimate of what the property is worth.
Knowing the approximate value of your intended property ensures you’ll have a nice return on your investment. You’ll be sure that you aren’t overpaying, especially once you take the property’s condition into account.
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