Understanding Property Valuation – Part 1
Understanding how to analyze the potential value of a property is one of the most important lessons a real estate investor can learn. Utilizing Realtors, appraisers, and other investors is always recommended, but fully comprehending their valuation methodology is essential. Below are some key elements involved in analyzing comparable properties that are considered in any proper valuation.
ALL COMPARABLE PROPERTIES MAY NOT BE EQUAL
Research recent sales in the same neighborhood with similar square footage
- Always stay within the same subdivision, if possible. Different subdivisions, even a street apart, can have different school zones and better amenities than that associated with your property.
- Start with properties that are no more than a 500-square-foot difference from your property and drop to a 300-square-foot difference if there are a large inventory of homes.
- Don’t expect homes within the square-foot difference to sell for the same as your property but you can still estimate a reasonable price per square foot based on this information.
Compare the number of bedrooms, bathrooms and garages
- For best results, comparable properties should have the same number of rooms as your property.
- Consider using a $2,000 price adjustment when considering the garage space.
Age of the property
- A good rule of thumb is to stay within 10 years of the construction. Be flexible, depending on the situation. You may find a 50-year-old home that has been updated with the same effective value as a 30-year-old home.
Price range in the subdivision
- Make sure the subdivision where your house is located supports the number that your price per square foot is giving you. Don’t out-price your buyers.
Architecture and construction
- Try to find comps that have similar construction, such as brick exteriors, slate or tile roofing tiles, etc.
- If your property has a garage conversion and the comps do not, estimate a dollar value for the conversion separately based on the flow and quality of construction.
In our next blog we will evaluate more factors that may affect value including location, school districts, neighborhood amenities, financial red flags and negative events.
Contributing editors include Adam Williams- Real Estate Broker and Longhorn Investments Loan Consultant- and Ed Nichols- Appraiser wit Common Sense Appraisals. If you have questions concerning the appraisal process, Adam or Ed would be happy to speak with you.
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ABOUT LONGHORN INVESTMENTS
Longhorn III Investments, LLC is a direct private lender offering short term acquisition and renovation capital to real estate investors for both residential and commercial assets. We operate in major metropolitan areas throughout Texas, Missouri, Indiana, and North Carolina. Highlights of our loan program include:
- Up to 70% of ARV (after repair value)
- Finance up to 100% of cost
- Close in 3 – 5 business days
- No income requirements
- Streamlined, simple approval process
- No pre-payment penalty
Longhorn was formed in 2008 and has funded over 1600 loans since inception. Our complementary businesses include a title company and real estate law practice operating out of our corporate office. Our wealth of experience puts us in the unique position of being able to help investors through all aspects of each transaction.
