Use Investment Markers to Set Purchase Price
Investing in real estate property has always been a great way to diversify one’s portfolio, increase cash flow and build wealth. But what many investors often overlook is that it’s not always the price of the property itself that matters – the value of the property can fluctuate depending on the factors that can affect its location, size, age and type of building, as well as its proximity to certain amenities and services.
When trying to decide what to offer for a particular property, it’s important to recognize that relying solely on market indicators isn’t enough to ensure you’re paying the ideal price for a property. Potential investors should also use a range of investment markers such as appraisals, comparative market analyses (CMAs) and comparative lease income (CLI) to make sure their offer is within the parameters of a reasonable and profitable deal.
What Is An Appraisal?
An appraisal is a professional opinion of value based on evidence, including an inspection of the real estate in question as well as an analysis of previously sold properties used to infer its worth. An appraisal is conducted by a licensed professional appraiser and can help investors determine the market value of a property by providing a detailed report of the property’s characteristics, such as its location, condition, features and its potential improvements. The Appraisal Institute can help locate an appraiser in your area.
What Is A Comparative Market Analysis (CMA)?
A comparative market analysis (CMA) is a real-time snapshot of a market’s current state. The CMA will compare recently sold or listed comparable properties with the subject property and then displays the relative worth of each. Comparable properties are typically found within the same neighbourhood and often show similar characteristics in terms of size, age, condition, features and more. The CMA can then provide an accurate analysis of the estimated worth of the subject property.
What Is Comparative Lease Income (CLI) Analysis?
Comparative lease income (CLI) analysis is a method used to compare the estimated income a property can generate through leasing with similar properties in the same neighbourhood. This process allows for a direct comparison of the estimated income that specific properties can generate over a period of time. The CLI will take into consideration factors such as market trends, vacancy rates, advertising expenses, maintenance costs, and more to determine the estimated income produced.
Setting A Purchase Price?
Once you’ve used the various investment markers to determine the value of the property, it’s time to set a purchase price. To do this, it’s important to factor in the estimates provided by the appraisal, CMA and CLI, as well as your own analysis of the property and the local market’s indicators.
Bear in mind that it’s often best to offer below market value while still remaining competitive in the negotiation. This is because the seller will most likely reject the offer if it’s too low, and if it’s too high, it can easily throw off your profit margin.
When To Buy?
Once you’ve established the purchase price, it’s time to decide when to make the buying decision. Markets shift constantly and often suddenly – so timing plays a key role in any investing venture.
To determine when the best time to buy is, it’s important to pay attention to economic indicators, such as employment statistics, consumer confidence and interest rates. These metrics can help you decide whether an area is currently experiencing a buyer’s or a seller’s market.
It’s also important to pay attention to seasonal trends in the real estate market, as certain months or times of the year may bring more buyers or sellers.
Finally, try to factor in how long the property may take to turn over before you’re able to start seeing a return – and consider whether this timeframe aligns with your goals.
Investing in real estate can be a lucrative venture, but doing so requires a great deal of research and planning. Relying solely on market indicators is not enough to ensure you’re getting the best deal – instead, use a variety of investment markers such as appraisals, CMAs and CLIs to help narrow down the parameters for a profitable purchase price. Additionally, use economic indicators and seasonal trends to help determine when the best time to buy is. Doing so will help ensure a successful and profitable real estate investment.
