How To Assess The Value Of Your Real Estate Investment
Are you getting started with investing in real estate investing for the first time? If so, you’ve come to the right place!
In this article we will share with you several tips that you can use for assessing the value of your real estate investment.
1. Emphasize Risk And Liquidity In The Valuation Process
Historically, real estate investors have placed more weight on capturing the actual loan cost and less on accurately capturing the liquidity and risk premiums when evaluating an opportunity. After three “once-in-a-lifetime” events happening in a 20-year period, investors and lenders need to reexamine assumptions and emphasize risk and liquidity when calculating the value of an investment.
2. Don’t Just Rely On The Cap Rate
Multi-family investors use multiple criteria to determine the current and future valuations of assets. Cap rates give a snapshot of the current cash flow versus the sale or ask price. Investors should also analyze demographics, job creation and population inflows to gauge the viability of the market and future growth. Prudent physical improvements also accelerate rent growth and the underlying value of the asset. – Jeffrey Rosenfeld, Adivo ConstructionForbes Real Estate Council is an invitation-only community for executives in the real estate industry.
3. Weigh The Investment Against Historical Sales
Investors, lenders and appraisers have long considered three approaches to value: direct capitalization (a multiple on current income), comparable sales and replacement cost. With virtually every investment seeing a sudden decline in current income, investors now need to place more weight on an investment’s basis relative to historic sales of similar properties and the cost to rebuild today.
4. Look At The ‘How’ And ‘Why’ Of The Numbers
One of the best resources is the property owner. Having hands-on experience really helps numbers make more sense, especially if something looks to be under- or overstated. Numbers are always required, but putting the how and why to those numbers is much more effective when assessing the value of an investment.
5. Understand The Driving Factors
Understanding the driving factors of value in different markets is the key to a successful assessment of an investment opportunity. In today’s data-driven world, it’s essential to have access to modern analytical tools that use machine learning to deeply evaluate opportunities. This will help you make confident investment decisions about where your money will generate the highest returns.
Contact RPM Central Valley
For more tips on how to assess the value of your real estate investment, or to speak with us about the property management services we can offer you, contact us today by calling (209) 572-2222 or click here.