So many newcomers fail to make it as profitable real estate investors. It is probably because they are horribly undercapitalized and are unable to subsidize their overpriced real estate investments. Putting down way too much cash for that first investment property is the mostly costly and fatal mistake you will make as a first time real estate investor. You must learn how to estimate current market values of potential investment properties accurately.
Know the value of a condemned house – some houses just cannot be cleaned up and sold, but there are some that can. Knowing the potential of such houses requires a fair amount of research. If a condemned house has potential after clean up, negotiate a below market purchase price based on the property’s neglected, run-down, non-marketable condition. After clean up, you could secure yourself a tidy profit.
Here is an eight-step approach to estimate a property’s current market value:
Step # 1: Obtain the tax assessed value of the subject property from the county’s property appraiser.
Step # 2: Analyze county’s property tax rolls for the most sales of three to five properties similar in size, amenities, features, and location.
Step # 3: Analyze these comparable properties carefully, and make sale price adjustments if there are any differences in amenities, other
features, and the subject property’s physical condition.
Step # 4: Confirm the income and expenses listed on the income and expense statement of the subject property.
Step # 5: Carefully analyze the property’s income and expenses for the past year. This will help you estimate its net operating income potential.
Step # 6: Work out the property’s capitalization rate. Divide its potential operating income by the estimated value you would obtain from analyzing recent sales of comparable properties in step #3.
Step #7: Multiply the property’s net operating income by the capitalization rate you calculated to estimate the property’s value.
Step # 8: The cost of making improvements on the property must be factored in as well.