Like a fine wine, the value of property gets better over time. Traditionally, the more time you have an investment property, the higher the value will rise.
However, unlike your favourite Shiraz, property values can go up and down, and up again.
Getting to know how, why and who is valuing your property can help us understand what property to invest in.
There are three ways to value a property – and three very different people doing the valuing.
THE VALUE HISTORIAN
The value historian is assessing the value of your property based on the past, what has come before. They look back at what was going on in the market three to six months ago and make a valuation based on what the property is worth if it was sold today, or in the next 30 days. What would it make based on the past?
Value historians work for the banks, the lenders. Their primary role is to protect the lender’s money. They have no real interest in what the property is worth in the future, or what the market projections are.
This is important to remember if a valuation comes in low, but you still like the property. Remember, as a smart investor, you’re looking at the long game, not what happened six months ago.
THE PRESENT VALUER
Other than the owner, the next person who is most motivated to sell a property is the person who values it in the present, what it can or could sell for right now. And that’s the agent.
Real estate agents, quite fairly, are motivated by money. The more they sell a property for, the higher the value, the more commission they get. That’s their job.
Agents are in a prime position to value a property based on what is happening in the market right now. They are getting phone calls every day from people wanting to buy and sell, so they can get a real sense of what kind of property is in demand and what might sell for more than the lender thinks the property is worth, based on market demand.
This is where agents can be helpful when looking at the value of a property. While the bank or lenders say the property is only valued at $500,000, talk to an agent with their finger on the pulse and they could estimate they’d get $550,000 based on their insider knowledge of the market activity.
THE FUTURE VALUE
This is the important valuer – because it’s you! The investor. The one who’s in it for the long game and has a plan and strategy and an end goal, whether that’s a shorter working week, or a new car every year.
Smart property investors do their numbers before they buy and know what they need a property to make in rent return and capital growth so that they can achieve their goals.
When it comes to valuing your property, you have to decide what the future value will be and what needs to happen to achieve that increase. For example, does the property need to be developed to reach its value potential, and if so, are you willing and able to do that? Make sure the property is going to work for you and your investment strategy.
UNDERSTANDING THE RULES OF SMART INVESTING
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