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Knowing how to calculate the value of an investment property is vital for any real estate investor. When you are in real estate investing, you need to make informed decisions, and your knowledge and skill in gauging property value are vital in determining whether a piece of property will be a good investment.
Starters in real estate investing who want to hone their abilities in property valuation should follow this comprehensive guide. In this blog post, you will learn the importance of learning how to do an accurate property valuation, the factors that affect the value of a property, and the various methods for determining a property’s value.
What is Property Value and Its Importance?
Property value is the current fair market value estimation of a piece of real estate. It is a crucial variable in conducting a real estate analysis. The property value is essential when you are thinking of setting a price for a property before listing it on the market.
If you are a property investor, learning how to make an accurate calculation of property value is vital in determining whether a property is capable of generating profitable returns or not. Figuring out the accuracy of a property’s market value can put you in a better position to maximize your profits by making informed investment decisions.
Knowing the right value of a property also helps you in making an accurate rental rate. It is also vital to know whether the property requires repair to boost its value and increase your rental price. Moreover, finding the value of a property can show its potential appreciation rate, giving you a sign of the perfect time to sell and how to make a competitive selling price.
The Fundamentals of Calculating Property Value
Equip yourself with an effective property investment strategy, and one way to do that is to know how to calculate property value. Armed with this knowledge, you can also determine the potential of a property to generate returns and other factors that can help you to make better investment decisions. Thus, learn these fundamentals of calculating home value.
- Use Online Platforms. Websites like Redfin and Mashvisor enable you to collect real estate data, such as market trends, neighborhood comps, property listings, and rental strategies. If you are looking for an accurate estimated value of the property, use such online platforms.
- Look into Public Records. You can access property sales, deeds, and tax assessments because they are public records. Visit local government websites for that purpose.
- Join Forums and Groups. There is value in joining local real estate groups and forums to learn from seasoned real estate professionals how to determine property value for investment.
- Interact with Local Real Estate Professionals. The Multiple Listing Service (MLS) is accessible by real estate agents. This privilege gives them knowledge about vital market data that can in turn help you with your property investment endeavors.
- Analyze Demographic and Economic Data. Look into the development plants, population growth, and employment rate in the area where you are interested in investing and analyze the data vis-a-vis your investment goals.
Types of Property Valuations
Real estate experts and investors use three kinds of property valuations to assess the value of a real estate property.
Fair Market Value
In a competitive and open market, the fair market value refers to the price that homebuyers are willing to pay and the seller would accept. Different factors influence the fair market value, such as the property’s location, size, condition, distinctive features, and the overall condition of the local housing market.
Appraised Value
A professional home appraiser is usually hired to determine the value of a property for purposes of investment. The location, size, condition, features, and upgrades of the property are factors that influence the appraised value. The sale prices of comps in the neighborhood are also a crucial element to get this value.
Mortgage lenders require a home appraisal to approve your loan application. The appraisal ensures that the home is worth the loan amount provided by the lender. The appraised value can determine how much loan amount you can borrow, its terms, and interest rate.
Assessed Value
A local tax assessor will assess the worth of a home in terms of dollar valuation for tax purposes. The assessed property may vary depending on the appreciation or depreciation of the property’s market value. However, the assessed value is typically below the actual market value at which you can sell the property.
Takeaway
Now you know the significance of calculating the value of a property. As a property investor, you should know how to make a property valuation, especially its fundamentals, to accurately calculate the property’s worth. The value of a property will help you determine its potential profits and how to set a competitive rental rate.
