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
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
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
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.
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Tuesday, 4 February 2020