How Do You Calculate The Value of A Particular Property?
In order to become a successful real estate investor, you will need to know how to calculate a good deal. You will need to know how much it will cost to buy a property, how much it will cost to restore, how much income it can provide you through rent and more.
To find the answers to these questions, you have several options that you can try. First, you can use a real estate calculator. Secondly, you can use real estate formulas and find the answers yourself.
And finally, you can consult an appraiser for the answers and information you need. So if you need help finding the value of a particular property then the following information will show you what you need to know.
Real Estate Calculators
Your first option are real estate calculators, and you can find plenty of them on Google and the internet in general. You can even find real estate calculator apps for your phone if you know where to look.
In any case, real estate calculators are designed to answer all of your real estate questions and concerns. Some calculators, for example, are designed to calculate the cost of a particular property, while others are designed to estimate their refinance and mortgage costs.
It’s also worth mentioning that different real estate calculators are based on different formulas. For example, some real estate calculators will ask you to provide your zip code and the age of a house. They will then use these two factors to give you an estimated price based on local market prices.
Other real estate calculators use more complex formulas, and offer more useful information but they all share one common feature, and that is to provide users with useful information with regards to their properties.
Real Estate Formulas
But what if you don’t want to use a real estate calculator? What if you want to estimate the price of a particular property on your own? Well, you have several options, and we’re going to discuss some of them right here.
Rehab Costs – Are you planning to flip a damaged property? You will need to estimate its rehab cost, and there’s a formula that you can use. You will need to multiply the square foot of a property by the repair/renovation costs per square foot.
For example, let’s say that a particular house is around 1,000 sq. ft, and the cost of rehabbing is around $20 per sq. ft. So if we use the formula, we will end up with the following data: 1,000 sq ft. x $20 = $20,000. That’s the rehab cost for the property.
The After Repair Value (ARV) – The After Repair Value refers to a particular property’s market value after it has been thoroughly repaired and renovated. The formula for the ARV is: Property’s Purchase Price + Value of Renovations.
So let’s say that you bought a property for $50,000 and you repaired it for $10,000. The property’s ARV, therefore, is $60,000. Of course, since you want to sell the property at a profit, you will most likely add a few extra thousand dollars to the final price.
Return On Investments (ROI) – Return On Investment is pretty self-explanatory. It’s the amount that you can expect to receive if you expect to rent or sell a property. The formula for ROI is Net Income / Total Down Payment.
So let’s say that you recently paid for a property that cost $350,000, and you expect a net income of around $35,000 from either renting it, selling it or a combination of both. Using our formula, we have the following $35,000 / $350,000 = 0.1 or 10%. So your return on investment for this property is 10%.
Price Per Square Foot – Price per square foot is a formula that’s widely used to compare comparable properties. It’s also a good choice if you are interested in buying new property. The formula is Market Value / Property Square Footage = Price Per Square Foot.
So let’s say that you have a property, and its market value is around $100,000, while its property square footage is 100. To use our formula, we end up with the following: $100,000 / 100 = $1,000. $1,000 is the price per square foot of the property. You can then take this result and compare it to other similar candidates.
Hiring an Appraiser
In certain situations, you may need the services of an appraiser. These professionals specialize in estimating the market value of various types of properties.
Not only can they calculate the cost of a particular property today, they can also estimate its approximate value in the past and how much it will likely cost in the future.
Appraisers also evaluate properties based on their market value, their characteristics and their comparable features. These factors are then put together to create a final estimated value for the property, which is then compiled into an official report.
This report is then presented to the appraiser’s client who uses the information for their decision-making process.
So far, we have talked about the value of knowing how to calculate the value of a particular property, but there are many cases where you simply need the help of a professional appraiser. A few good examples include:
- When the property has a damaged room or two but otherwise is in good condition.
- When the local area’s real estate market is highly unpredictable.
- When none of the real estate formulas that you know offers any good answers.
- When you need a professional to advice you about a particular property or investment
- When you need a second opinion on the value of a particular property.
So if you ever find yourself in a situation where the standard real estate formulas no longer work, don’t hesitate to bring in an appraiser to help you. Their expertise and training may spell the difference between a profitable investment and an unfortunate waste of time and resources.