Effectively assessing an investment property’s value

Real estate investment is appealing for both its’ stability and consistent returns.

The ability to analyse data makes it easier to make informed choices when it comes to choosing the type of investment.

The one constant in real estate investing, is the valuation of properties that you are interested in.

Here are some of the best methods to ensure that you are making accurate valuations.

·       The Sales Comparison Approach

This is one of the most common approaches and essentially means comparing the sales price of similar properties, to determine a reasonable price for the property you are considering.

Other factors to take into consideration include the type of property, the location, its age, interior and exterior features, size and fittings.

·       Capital Asset Pricing Approach

This approach is taking a more macro view of your investing and is an attempt to determine if the risk is the best use of your funds.

You can do this by modeling what your returns would be in alternative vehicles like REITS or ETF’s.

Once you have done that, you need to calculate the potential rental yield and then see what buying price would allow you to make more returns than the alternatives.

That would then determine the value of the property o you and it’s the figure that you will have to stick to, if you are determined to make a reasonable profit from the investment.


·       The Cost Approach

This method involves estimating how much it would cost to rebuild the property from scratch in the current market.

This is a good method for unique properties, where it is difficult to find direct comparisons.

The procedure involves estimating the value of the land if it were vacant and its highest use.

Then you would need to estimate the cost of constructing the building(s) on the property.

You could either find the cost of each component and totaling them all u or get an estimate per square foot, for a similar building.

You would also need to consider the depreciation factor and how much the value of the property has reduced over its lifespan.

This can be done using the age-life method, which assigns a potential lifespan, to the property and deducts a percentage based on how far along the lifespan the property is.


Need to speak to a property strategist before making your next property purchase?

Contact us @ propertysales@realrenta.com and we will get Jamie our property strategist partner to

contact you.

Need a property loan?

Contact us @ propertyloans@realrenta.com


Marlene Liontis & Jason Gwerder
Tuesday, 4 February 2020

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