A Look at How to Value Real Estate Investment Property
Everyone dreams of having and enjoying their very own slice of the real estate pie. Whether it is a new home they can live in like apartments in Mumbai or whether it is a beautiful office in the heart of a bustling city, a lot of land in the green countryside or a small industrial unit ripe for manufacturing activities…and everything in between. Some people buy real estate as properties they plan to use for their own activities , some as investment properties and assets and some a mix of both.
You constantly have people coming and telling you how real estate is such an awesome investment and how amazing it can be. Well, it can be but only after due consideration of not only the property itself but also your goals, capabilities and abilities to handle this form of investment. For those who can not save out of habit or out of necessity, those who do not have the wherewithal to invest by themselves and pay mortgages loans etc. (which are almost a means of enforced saving) and those who cannot keep track of such activities, usually do not good real estate investors make. You have to be realistic of where you stand, what you expect and how long you can keep track of everything.
Need help making a decision? Here are a few factors to consider when you are trying to value real estate investment property –
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Firstly, you have to calculate what kind of income a particular property would generate since it will be the return on your investment. See how much potential rental income you will be able to earn from the said property. Check out comparable properties in the area with similar square footage and amenities, find out how much tenants are paying for said comparable properties and do some thorough market research. Once you find out what your potential earnings could be, keep in mind you will have to deduct expenses like operating costs, maintenance costs, taxes and more. And also not to forget your mortgage and interest payments.
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As you will forecast a rise in rental rates in the future and count it toward your future gain, you will also have to take into account the possibility of vacancy. Do go through recent trends in the area and also depending on the kind of property you are looking at. High rates of vacancy are always a possible risk and a factor that lowers your net income. Besides even as a property owner you must be sure, you can afford to make all your necessary payments in case such an unfortunate situation arises.
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Calculate your potential capital gains for the property in question. This form of gain will only be realised once your real estate investment property is sold i.e. how much you will earn on the sale of the property. Try and do a rough assessment depending on the time frame you wish to hold it for. Of course economic and market conditions are unpredictable and may change, but you should have an idea of long and short term capital gains potential before you purchase.
Buying a piece of real estate, is no cakewalk. It requires due diligence and you should consult the experts in the field if you have serious questions or qualms. Making an informed decision is the best thing you can do for yourself as an investor
Bio – Ram M is a real estate broker who has dealt with various major developments including apartments in Mumbai and prime commercial spaces spread across the district, in the past 8 years of his career. An avid blogger he also loves writing about the field.
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Category: Real Estate
