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How to Estimate the Current Market Value of a Property

Aug 17, 2007
New entrants in the real estate investment business make the common mistake of paying too much for a property they invest in. Once they pay more than required, it eats into the profits that they can make, and, at times, may even result in loss. This marks their end in the real estate investment. They burn their fingers by purchasing property that is overpriced and which does not fetch them the desired returns. First time investors generally do not have much of a financial cushion to subsidize any overpriced investment they may have made.

To avoid such a situation, it is essential to educate oneself with the innards of real estate investing. The first thing to do would be to learn the tricks of evaluating the current market value of real estate property that one intends to invest in. This is the very base of successful real estate investing.

Evaluating the property for its current market value and buying it at a cheaper rate is the crux of real estate investing. This is well illustrated in a case where one person purchased a house in a run down condition from an absentee landlord from a different state. Having estimated the property to be worth over a hundred thousand dollars in a refurbished state, he negotiated and got a one-year option for purchasing the property for seventy five thousand dollars.

He spent another two thousand to get the yard; driveway and the house cleaned and pressure washed and within the next fortnight sold it for a profit of fifteen thousand dollars. He was able to make this profit not only by evaluating how much the property would fetch after renovation, but primarily because he was able to correctly appreciate how much it was worth in its run down condition to be able to negotiate for a bargain price.

You can use various approaches to assess the current market value of the property. This would enable you to make a fair estimate when making an investment decision and save you from the pains of being exposed to an unprofitable of loss making venture.

First, you need to check the tax-assessed value of the property you are considering. You can do this by visiting the website of the property appraiser of your county. Then find out the details of a few properties that have recently been sold within the vicinity, say within two to three miles of the property under your consideration. You can get this information by searching the tax rolls of the county. You can then compare the amenities present in the properties which were sold and the one you are considering and make adjustments based on the differences, if any, also keeping in view the physical condition, special features and amenities. Then check and analyze the income and expenses related to the property over the past year to get an estimate of the net income generating potential of the property.

Divide this income generating potential with the estimated price to get the capitalization rate of the property and then multiply the capitalization rate with the net income generating capacity to arrive at an estimated price or current market value for the property.
About the Author
Real Estate Investing is made easy with Real Net USA. Our four step program of find, fund fix and sell, is your blueprint to Real Estate Investment success. Discover how you can profit at http://www.realnetusa.com.
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