How to Test the Market Value of a Property
When you are investing in residential properties, estimating a home’s value is an important part of the process. The value of a property will determine how much you must invest to buy it and how much you can charge for rent when the property is ready to lease. Of course, property value isn’t always apparent, and even the most readily available information may not provide a fully accurate view of the property value today.
Fortunately, you can research and test the market value of a property even before you begin negotiations to add it to your portfolio. This article an provide a quick guide to estimate both property value and potential rent prices for any given location.
Housing Prices vs Rental Prices
Remember that there is an important difference between housing prices and rental prices when estimating the value of a property in your porfolio. Housing prices determine the amount that you would need to pay the seller and become the owner. Once you own a building, rental prices are determined by the region of the city they often alk through.
Compare Prices in the Neighborhood
The quick and simple way to estimate a home’s value is by scoping out the value of other properties in the neighborhood. Neighborhood prices can have a strong influence on the potential value of a home or commercial building. You can get a ballpark estimate just by understanding the price range of recent property sales on the same block and in the same neighborhood.
The Listing Price Calculation
One of the best-established ways to estmate property value is to use the real estate method. Listing price calculation is how real estate agents determine how much to list a home for, expecting offers both above and below the line.
The listing price calculation begins by investigating the recent sale prices of other homes in the area. Neighborhoods play an important tole in determining home values. Real estate agents look at recent home sale prices, favoring sample numbers from homes that have asimilar size and floorplan as the target property. A listing value is then chosen that is below the highest sale-value and above the lowest sale value, with consideration for unique features, good condition, and new assets like a freshly installed roof or HVAC to raise or lower the estimated price.
Estimating Potential Rental Price
Estimating the rental value of an investment property can be achieved with a slightly more complex process. Rental prices are typically broken down based on square feet and number of bedrooms, even moreso than local housing prices. Take the number of bedrooms and the property type (single-family home, condo, townhouse, apartment, etc.) and determine the price range in your city. Then narrow your scope to the price range in your neighborhood. Determine if the average price is higher or lower than the city average.
From there, you can add or subtract value based on the quality and features of the home itself. This will give you a rough estimate of the rental value of a property and how much you can potentially make if you choose to invest.
Testing the Market Value of a Property
The final step is to watch how quiclky similar properties of similar locations, sizes, and features move on the market. You can watch prices in action by seeing which nearby properties rent quickly or sell for more than listing to see which way the wind is blowing.
Your investment is our investment. At Leaf Management, we know that every home matters and your investment plan determines your long-term success. We can help you estimate the price of a property to buy and to lease once you own the property. We can also provide long-term property maintenance.
Contact us today to learn more about property management best practices.