How to value property for investment

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How to value property for investment

It might seem easy to work out the value of a property. You can check with several different estate agents what they think about local prices, search online and with the Land Registry, or even ask neighbours to the property about things like crime and living in the area, but there is more to consider.

You need to find out what the property is REALLY worth in that area, away from what the seller is wanting you to pay to discover the real value. If you are investing in property the more knowledge you have, the more chance you will have of finding affordable property or negotiating good discounts on the asking price. It will also help you to spot ‘Below Market Value’ (BMV) properties as they hit the market.

In economic downturns, for example, there are likely to be a lot of property repossessions and you will be able to spot them and acquire them before competitors.

There is a lot of information you need to acquire to make this happen.

Understanding Property Value Perception

Remember estate agents are there to make money. They will often value a property higher than what it will sell for, or even what they expect it to sell for. They want your custom so will entice you with a high sales value to get you to work with them.

You’ll find that a surveyor (valuing the property) will come in lower. This knowledge can work to your advantage, by knowing that there is a fair range of possible prices for the property, adding 20% to the value given by the surveyor in a lot of cases. You might also find an estate agent that wants the property for themselves will value it very low.

Knowing these factors will help you make a fair assessment of the property and working with the different valuations know where to place your own valuation. The only real value is what a buyer is willing to pay for a property, so use this power to ensure you are getting the right price.

If you are selling a property, use this to have a realistic idea of what you will be able to sell for. The situation can change regularly based on market liquidity, buyer perceptions, the quality of agents and changes to local areas.

Put simply; check prices from as many sources as possible.

Many people think there is a “set” market value for locations, which is easy to assume if you look at all the prices achieved and take an average. But each sales motivation is different, bought by different people and under different circumstances.

On any street over a period of time, two properties could have gone to first-time buyers, others to investors buying at auction for HMOs, two more to established home-owners with full ownership. Delving into the figures you will find prices at varying percentages above (or below) the average asking price, often for similar properties.

On top of this Property Value Perception is different for different buyers, different surveyors so there is no set reasoning behind all this. The more you look at this data the more patterns you will see emerge. As a property investor, you need to learn to ignore properties where there are no, or little, motivations behind the sale and focus on where there are discernible ones.

Are property values growing because of the growing demand in the area, making now a good time to invest? Are properties selling fast in that area?

There is no magic formula for this, and it will only come from experience and knowing what to look for, including the tricks of the property trade as it tries to make its own profits.


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