How a property is valued for investment

Real estate acquired for investment, have completely different parameters, which are bought to live in them, when making an assessment of the same.

To assess multifamily properties, industrial, malls, office buildings and other property intended to serve as sources of income, three different methods are used: a) Replacement value; b) Comparison of income; c) value per square foot building and the land on which the building is erected.

Replacement Value: Replacement value as the name implies, is calculated taking into account the cost to build a building that would bring the same type, size and quality, which is appreciating in place and the area where the finds himself.

This is achieved through the current value of the lot of land on the property and the cost of rebuilding the property itself is erected; well, considering the size and facilities of the same, based on the current value of the building materials to be used, following the manufacturing drawings, as well as the cost of labor and any additional costs associated with the work.

Comparison of income: This technique is used mostly in multifamily properties, shopping centers, office buildings and industrial parks and is based on performance yielding property in the financial year of a fiscal year, which is obtained by summing the annual revenues and these subtracting all expenses incurred during that period. That sum will yield net operating revenue in the fiscal year for which question. That figure is then divided by the money used to buy the property and have the economic performance of the property, in its first year. That performance compares to other properties of the same type, within a radius of one kilometer radius, and up to the desired number. It is known that some properties offer more performance if they are financed that if you pay in cash.

Value per square foot building and grounds of the property: This mode is easy to understand, because it is do a search for the square footage of the properties that have recently sold and closed in the area, with the aim of obtaining the average price paid per square foot manufacturing and field, to apply to the actual dimensions of the property being valued.

Although it seems simple it is not, because factors such as access to the property, parking, proximity to main roads with intense traffic, existing tools and / or heavy equipment locked in place, and the physical location of the property in the block itself , may affect the intrinsic value of the property.

Most important of all is the location of the property. A good location justifies any adjustment to the purchase price. Should always be taken into account to compare the properties are similar; that is, to compare oranges with oranges with oranges and apples ever.