Factors Affecting Property Value
By Desert Dog on Jun 29, 2009 with Comments 0
The first question asked about any potential investment property is, “What is it worth?”. Several factors determine the value of any property.
Location: This one is obvious. The same house located next to the city dump will be worth less than one located next to a golf course. The location can’t be changed, so the investor must evaluate the desirability of a given location for the end user.
Condition: The better the condition the higher the value. Many investors look for run down property because its perceived (as is) value is significantly less than its actual (repaired) value.
Suitability for Desired Use: A given parcel of land is said to have a single “highest and best” use. The investor must evaluate if the property is being used for or can be developed for that “best use” in an economical manner. A mountain lot may be unsuitable for residential use if the cost of providing access and utilities is too high. Suitability is often closely related to location. A single family house on a street that has been redeveloped to apartment complexes may no longer be suitable. In this case it may be more profitable to redevelop the land. The more suitable a property is for its use, the higher its value.
Aesthetics: Better known as “curb appeal”. Does the property conform to neighboring properties or is it an eye sore? What is the quality of craftsmanship? The more appealing a property, the higher its value. Fashions and tastes change and outdated properties are another source of potential profit.
Appreciation Potential: The more likely a property is to increase in value in the future, the higher its value today. Ask yourself if the neighborhood is well kept. Are there road, retail, industrial, or leisure developments planned that may impact this property. Is the area undergoing renewal or is it running down? What is going on around a property often has a significant impact on its appreciation. Likewise an apartment with a low rent roll may be made to appreciate with modest improvements and increased occupancy.
The relative weight of each of these factors can be difficult to measure and may change over time. A given buyer may also place more emphasis on a given factor.
As investors we have virtually no control over location and suitability and must weigh them “as is”. Likewise, we have little or no control over future appreciation, but we should negotiate our price to enhance our realized appreciation. The investor has the most control over condition and aesthetic appeal. Small improvements in condition and appeal can yield significant value gains for the investor.
© 2009, The Desert Dog Journal. All rights reserved.
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Filed Under: Buyers • Investing • Real Estate • Sellers
