As the economic environment brings about change, so property valuation must change to meet these new conditions. For property investors the value of a property affects everything from the purchase, property income, and importantly the investor’s ability to leverage for further investment. Before looking at any property valuation, an extremely important property investment tip is to understand what approach or property valuation method was used to determine it. From there you can cast a more critical eye over this vital element of property investment.
Property Investment Tips will look at the three most common methods of valuation and compare them as to how they relate to property valuation in 2010. There are three basic valuation approaches used to value property, with each using different means of finding the property’s place in the market. The methods include ‘the market date approach’, ‘the cost approach’ and ‘the income or investment approach’. The market data approach looks at the value of property sales in the area and finds how this property compares to the ones that have been sold. The cost approach uses the actual value of land and how much the property cost to build. The income or investment approach uses a formula based on the cost and income of a property to determine its value.
This series of property investment tips on property valuation articles will discuss the three different property valuation methods. The first article will discuss the market data approach, the second the cost approach and the third will explain the income or investment approach.
Next: The Market Data Approach.