Taking a Three-Pronged Approach to Valuing Properties

Taking a Three-Pronged Approach to Valuing Properties

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There are three primary facets of property value that must be considered and weighed to understand the big-picture value of your investment property.

 

  1. Distinct qualities that can be quantified: Valuation begins with the most obvious, easily quantifiable characteristics of a property, such as age, size, layout, etc. These qualities have exact measurements that cannot be disputed. Of the many measurable characteristics of an investment property, land is perhaps the most important because it will typically appreciate in value over time in direct contrast with the buildings and structures on it, which will depreciate as they age. This factor is most important for properties that will be held as long-term investments, but is important to consider even in short-term holdings as location can also determine how easy a property is to fix-and-flip. When considering rental or non-owner-occupied residential properties, location of the land can be especially important, houses on quieter streets and cul-de-sacs will almost always have a higher value than houses located along busy streets.
  2. Aspects that are unobserved or overlooked: As an investor, it’s important to look beyond the obvious characteristics of a property that are described above and take note of what often goes unseen (i.e., plumbing, heating, and electrical systems within the walls). The structural integrity of the house or buildings on your investment property play a big role in its value, so it’s important to conduct a thorough inspection with a professional who is trained to catch things that you might miss to catch any possible decay or other internal issues and to limit the chance of costly surprises after you purchase the property.
  3. Vague or indefinite characteristics: There is a third category of general factors that can affect a property’s value either positively or negatively. These are often more difficult to pin down than the measured qualities or issues of structural integrity. Oftentimes, characteristics that are desirable in one property can be detrimental to the value of another, solely due to supply and demand in a particular area. This is why knowing the neighborhood in which you’re buying property is key. If there are too many properties with similar features nearby, then unless your property has one or two unique characteristics, it’s value will likely be negatively impacted.

 

Appraisals can vary significantly from year to year and from appraiser to appraiser, but using this three-pronged approach can help you to approximate a fair value for your property or potential property and determine the strength of it as a long-term or short-term investment.

 

If you have questions about investing in commercial or non-owner-occupied residential properties, contact Montegra at 303-377-4181.