How To Determine Value

This is where the rubber meets the road.

My first question is personal property or investment property?

Personal Property – My advice here is work with an experienced REALTOR with a proven track record. Why? Because there is a little bit of art mixed with science here. It is extremely rare that a particular property will exactly match a neighboring property. And even if it did the negotiation skills of the Buyer and/or Seller would probably be different. Having said that, personal properties are mostly priced using a comparison model. It is helpful to know how your house compares to the other houses in your neighborhood. More bedrooms? Less baths? Are the mechanicals new or 15 years old? All of these are factors. So is the season of the year and motivation to sell.

Sit down with your real estate agent and go over the numbers for the last 12 months. Look for trends and be honest when comparing your home to your neighbors. Look at the home from a Buyer’s eye. (You may be very proud of the new roof and furnace. And the Buyer does notice that. But the Buyer also expected the house to have a dry inside and heat in the winter.)

Investment Property – I’ve said it before and continue to stand on my soap box. When buying income property the price should be based on the cash flow that property will produce. What should that be? I cannot answer that. It depends on your goals. If you are an investor looking for a 15% cash on cash return you will have an entirely different approach to the value as an investor looking for any home that will have an 8% cap rate.

Before you go out and look at properties I would advise you sitting down with an informed real estate agent and determine what your goals are for your money before you invest in rental properties. Yes, you have to take comparisons into account. But don’t base your bid on those alone.

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