Real Estate : How do you price it? Investment analysis for the rest of us. This part one of a three part series on how to arrive at a price for a property and how to determine if it is fairly priced. I admit this is pretty dry stuff, but if you are buying a home or investing in real estate you just have to have a basic understanding of how price is derived. Appropriate pricing means being realistic, buyer does not care how much you have paid for your property or or how much history you have, your home has emotional factor only to you The first way isto have it appraised by a professional with credentials and experience in your market You can call your real estate agent or lender and ask who they use in your area. You can also go to the professional appraisers association at appraisal institute and search for an appraiser by city or state.
Factors that Do Affect a Property's Value. 1. Repairs are a necessity of owning your own property, most repairs will not increase the value of your home unless they were considered upgrades like improvements of fixtures and appliances or additions. 2. Location: As always, real estate is location. Homes on the sunny side of the street or in quiet cul de sacs may fetch more. 3. Style: The style of your home is a kind of fashion statement and as such go in and out of style. 4. Age and the time of the year. Homes sell faster and for higher prices during the spring and summer in most parts of the country 5. Seasonality: Homes sell faster and gor more money during the spring and summer in most parts of the country. Timing the sale should pay off handsomly. Conversely, buying during the off season should get you a better deal.
Competitive Pricing: When your asking price is higher than the current market dictates, its likely your property will sit unsold. Time and the best parts of the season may quick;y pass and you will be left with a "stale" house thats been on the market too long.
When you price a property you should consider: 1. The Market: This would best be seen by looking at the MLS and driving around the neighborhood to see what others are doing 2. You Property: Consider its best points and emphasize them 3. Staging: This is a good time for cosmetic improvements. 4. Homes that did not sell: Looking at what failed can help you avoid the same fate. But there's More...
Cash Flow Analysis In order to see if if you can afford to pay the bills when you are investing in a rental property, the go to number is the Net operating Income. It is the cash the property gives off, this is what investors look to see if the property can pay its own bills from the buildings income. Its really simple arithmetic, but first some basic definitions you will find in any analysis of rental property: Gross Scheduled Income: This is the amount of rent you would collect f it was 100% occupied. Every unit rented out, no vacancies. If you have a vacancy assume the market rate for that unit and make a note that the number being used for vacancies is what it could be rented out for today. For all other units use the rents being paid. Vacancy: Determine here what the vacancy rate is normally for that property. Generally vacancy rates are expressed in percentages. In other words, the building will have an average vacancy rate of 5% or 7% etc. This is where the gross scheduled Income, which assumes 100% vacancy gets corrected and the real income is determined.
gross scheduled income x the vacancy rate% = rental income
Rental Income: This the real world rental income number that the building will generate on a monthly basis. Other Income: In many apartment buildings rent isnt the only income. There will be parking or storage income or washer dryer income etc. that added to rental income will give you the total or gross operating income for the building
rental income + all other income from the building = gross operating income
Gross operating Income: This is the number that expresses all the income the building produces. If you add rental income to other income you get the properties gross income. Now Gross Operating Income is the income that the building produces annually. But, we have yet to look at expenses. If we subtract all the buildings operating expenses from the gross income we get at Net Operating Income. This is an important number, because this is the number that you will pay your owner bills from. It will tell you if you have to go out of pocket to carry the property. The basis of pricing a property or determining if the property is a fair price begins with cash flow analysis. Then parts two and three of this series will look at the two major ways investors will use cash flow to price for sale and buyers should understand so they can determine what a fair market value for a property is. Part Two will look at the GRM or the most common method for pricing smaller properties. REsourced from www.yourpropertypath.com You may republish this article, as long as you do not edit and you agree to preserve all links to the author and www.yourpropertypath.com
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