Real estate is a great investment opportunity, and a stable source of income for those who purchase it, or rent it to others. Knowing how much you can actually get for your investment will determine how much risk you are willing to take on in acquiring the property. Below, we will discuss five different methods of real estate valuation so you can determine which one is right for you.
Table of Contents
Market Value
The market value of a property is the price that the property would sell for at a market sale. There are a variety of ways to establish this value, including asking real estate agents, researching online valuation tools, and even getting a professional valuation. This number can vary from month to month and can be quite deceiving, so be sure to research any particular property to determine its market value before committing.
Income Producing
An income producing property is one that generates an income. This could be anything from renting out the property to those looking to live in it, to investing in property development. Determining the exact amount of income can be tricky, but measuring the potential for income gain is a good place to start.
Most property investment companies, like RWinvest, would define property as a non-liquid asset,
meaning you would not be able to immediately sell to see a quick profit (as you would with other
ventures, like stocks or cryptocurrency.)
Property investment could also come with a slightly higher price tag when it comes to initial costs.
For example, the average house price in the UK is currently placed at £278,000.
However, there are several ways of making it more affordable such as mortgages and investing in
areas where properties are below the average price.
Cost To Rehabilitate
A property’s rehab cost is an indication of its market value. The higher the cost to rehabilitate a property, the more it will cost to renovate it. This number can be tricky to come by, but it is usually an indicator that the building’s deterioration was expensive. Ensure you are considering a property’s true cost to rehabilitate when calculating its value. This will help you avoid being fooled by false advertising, and it will also give you a sense of the true cost of ownership. Be sure to factor in all of the costs associated with the property, including maintenance, upgrades, and repairs. You can find cost-to-rehabilitate data in multiple places, including the local school district, the state, and online directories like GetHuman.com.
Rental Yield
The rental yield on a property is the total return on investment, expressed as a percentage. This number illustrates the amount of money that you will make on your investment, assuming you decide to rent the property. In general, a rental yield of at least 3% is considered excellent, and a 1% rental yield is considered safe. For instance, if you bought a property for $400,000 and decide to rent it for $500 a month, your rental yield will be $100 per month. You will have spent $400,000 to acquire the property, and you will have made $500 a month on it. This is a good deal!
Long-Term Capital Gain
For many investors, long-term capital gain is the best type of investment. It is a great opportunity to invest in real estate, as long term capital gain provides the opportunity to make a profit from the investment without having to pay the usual capital gains tax. In some cases, you can even deduct the full amount of your investment from your taxable income. You should get into the habit of keeping your long-term capital gains as liquid as possible by selling it annually or using investment vehicles like a limited liability company (LLC) to buy and hold onto your properties.
In the eyes of the Internal Revenue Service (IRS), liquidating your long-term capital gain is all about following the rules and taking the time to do it correctly. If you are not sure how to do this, you can contact a qualified accountant or financial planner who can assist you in taking the proper steps to structure and document your long-term capital gain. Don’t expect to simply declare the profit and give yourself a check; your tax preparation company will need to help you properly figure out the appropriate tax levels based on your specific financial situation.
Summary
No question, real estate is a great investment opportunity that can provide a stable source of income and a solid financial foundation for your future. Knowing how much you can actually get for your investment will determine how much risk you are willing to take on in acquiring the property. For more information about how to properly value any type of real estate, contact us today. We are here to help you achieve your personal and financial goals through the purchase of quality real estate, and we look forward to the opportunity to help you achieve yours.
