Before You Seal the Deal: Evaluating Investment Property Values

“Before You Seal the Deal: Evaluating Investment Property Values” is our eighth in a series of blog posts on real estate investing. To read more, download our entire eBook, “The Real Estate Investor’s Checklist.”

Once you’ve narrowed down some of the markets and found interesting properties, it is time to evaluate deals. The first step to analyzing the value of a property is to understand what contributes to its value.

In general, a good financial analysis means getting some basic data and feeding it into a financial model. Then, use that model to determine whether the investment is good or bad.

Make sure you have the best information available when doing your financial analysis. Remember, it is often in the seller’s best interest to provide numbers that are more “appealing” than they are accurate. Therefore, make sure you focus on hard data. This includes information like the previous year’s tax returns, property tax bills, and maintenance records rather than pro-forma statements. Here are some basic points to consider when assessing your investment’s value.

Property Details

This includes information about physical design of the property, including number of units, square footage, and utility metering design. It should be available from the seller, but you will get more comprehensive and detailed information from your local County Records Office.

Purchase Information

This is basic pricing information, such as the purchase price and the price of any rehab or improvement work you will need to do. The seller is going to name a purchase price, but it is worth having the property inspected by a professional building inspector to ensure that there are no hidden issues or problems.

Financing Details

Financing details include the total loan amount, down payment amount, interest rate, and closing costs. Your lender or mortgage broker is the best source for this information, ideally through a letter of approval.

Income

You will get this information from the seller, but do not rely on pro-forma data for final analysis. Talk to the property management company currently running the property (if there is one) to get this information.

Expenses

This is the detailed information about the costs of maintaining the property, including property taxes, insurance, and maintenance. This information should come from the seller or property management company, but you will also want to get your building inspector’s perspective.

Be on the lookout for our upcoming blog post covering key financial metrics to consider for your real estate investment deals, or download our entire eBook, “The Real Estate Investor’s Checklist.”