How to Calculate the Value of Your Property
Many real estate investors earn well from investment properties. Although, property investment is considered a profitable business, it does not generate substantial profits for every investor. Many people who are in a proces of buying or selling a home, try to find out “How Do I Calculate the Value of My Property? Before you get into the sale agreement, calculate the value of the property from every aspect to ensure you are conducting a wise transaction. When the prices are low, buying a home canbe a very good idea, but it’s a bad time for the seller unless they are in a great need for the money.
Calculating Your Property From Different Aspects
There are different aspects to look at when selling a property, such as, replacement cost, market value, cash return, and capitalization rates. Calculating these figures will help you to evaluate the commercial viability and prospects of your property.
To start wisely, first assess the market value of your property. FMV (Fair Market Value) is the amount of money that both, a seller and a buyer agree to receive and pay against a commercial transaction on a property. In order to evaluate this value, you must consult a professional real estate agent to get the comparable prices around your neighborhood. The best comparable homes are those sold in the last 12 months in a similar locality. The sold properties should be comparable in terms of size, age, style and condition. You can get these records from tax assessor or records office as well other than the real estate agent. This is exactly what a home appraiser does.
Evaluate How Much Your Home Is Worth
Replacement Cost Method – When evaluating your property, apply the replacement cost method. This means that you are assessing the cost of re-building the exact property. To evaluate the replacement costs, take the total cost of labor and materials, add the value of land, and less any accumulated depreciation expenses. This valuation model applies to the properties that are exclusively built or those that are unable to find any recent comparables. This calculation method is also used to compare the market data.
Annual Net Operating Income – Next, assess the Annual Net Operating Income. Cast up the probable rental income up to a year, less any further costs incurred to maintain the property for the current year. These costs take account of repairs and maintenance, if any, management fees and property taxes.
Rate of Capitalization – Now, calculate the rate of capitalization. To do this, divide the Annual Net Operating Income calculated before with the market price or purchase price. The rate of capitalization for properties is usually between 5 to 8.5 percent. You can compare different properties by applying the rates of capitalization to calculate the best value.
Value Of Property With A Mortgage
If you wish to account for the mortgage payment as well, then calculate the amount of cash on cash return. Deduct the amount of mortgage payment from the amount of income generated through property to calculate the figure of Annual Net Operating Income.
Divide the Net Operating Income by the amount of down payments and any repairs and maintenance required within the property. For example, add the amount of $25,000 incurred in respect of down-payment to an expense of $5,000 for repairs and maintenance. Now divide the amount of Net Operating Income by $30,000.
If the amount of Net Operating Income is $3000, the amount of cash on cash returns is $3,000 divided by 35,000, giving a round figure of 10 percent. Here, in this example, the property will give you 10 percent of the money you have invested. By following these guidelines, you can calculate the value of your property very easily; however, it is better if you consult a professional real estate advisor before getting into any agreement.
Don’t be cheap when it comes to financial matters, ignorance is probably costing you more.