Conducting a Adelaide Property Valuers is a critical part of making the best possible investment decision. This is because not every rental property provides the same return to investors. At first glance, the two properties may seem equivalent. But as they say, appearances can be deceiving.
By accurately valuing rental properties, you can profitably grow your family rental investment portfolio and avoid buying into someone else’s mistake.
In this article we will discuss everything a real estate investor needs to know in order to carry out a property valuation.
But first…
What is a property valuation?
A property appraisal is a calculation that real estate investors use to determine the value of a property. Real estate valuations can be done by investors using specific Property Valuation Adelaide and market data, licensed appraisers, and real estate brokers with a BPO (broker opinion of value).
The numbers you need before you do a property valuation
Before you start calculating the property value, you will need to gather some key financial data for property valuation:
The mortgage payment and whether the payment includes property tax and insurance.
The amount of the down payment, which will vary depending on the type of mortgage loan and the investment strategy used.
Rental income including vacancy allowance and the amount of rental cash flow left over after paying the mortgage and running costs.
A price-to-income ratio that compares the median home price to the median income in the market. As the ratio falls, homes become more affordable to buy, which means the number of potential renters could also decrease.
Gross rental income, which is measured by dividing the total purchase price of the Property Valuation Adelaide (including closing costs and fees and necessary improvements) by the annual gross rent. The higher the rental yield percentage, the better the investment property can be.
A capitalization rate (or cap rate)
That measures the rate of return on a rental property and is calculated by dividing net operating income by the home’s market value. Because the cap rate doesn’t factor in financing costs, it’s easier to make an apples-to-apples comparison of similar properties in the same market area.
Cash flow, which is the money left over after paying all expenses, including the mortgage, and is usually measured on a monthly and annual basis. Negative cash flow occurs when the amount of expenses and debt service is greater than the amount of rental income received.
General factors affecting property value
You’ve probably heard the saying that “real estate is all about location, Land Valuation Adelaide, location.” That is absolutely true. However, location is only one of seven general factors that affect property value:
Property size and floor plan
Price per square foot is the most common metric used to value residential real estate. This is important because while you can also use financial calculations such as cap rate and ROI to assess a property’s income potential, your exit strategy may require selling to an owner rather than another investor.
In addition to the size of the house, the Property Valuation Adelaide is also influenced by the number of bedrooms, bathrooms and the overall floor plan of the property. Just because a home is bigger doesn’t necessarily mean it offers better value to the investor. This is because the characteristics of the house should match the market and the target tenant.
For example, a three-bedroom, one-bathroom home would be considered functionally obsolete by today’s standard of living. A small one-bedroom house in a college town will have a lower price per, but it can also be harder to rent because students prefer to have roommates to share the rent with.
Property improvements
Single-family rentals where the property owner has already made improvements can be a great deal for buyers. This is because very few improvements, if any, will increase the value of the property by the same amount as the money spent on the improvements.