When you are looking at purchasing a property for real estate investment, one of the first items you need to look for is comparables. Professional real estate investors don’t rely on others price opinions but rather form their own opinion on the value of the property. This article identifies the 5 ways for re investors to feel comfortable with the price they are paying.
- QUALIFY THE AGE OF COMPS - This is never as important as in this particular market as the prices are in a state of flux, and sales which are being recorded are distressed sales and as such may undervalue the true value of a Minnesota real estate investment property-which is good news if your buying.
- UNDERSTAND THE DISTANCE - So your comparable states its within 200 yards of the target house, perfect, well maybe not it could be in a vastly different sub-division or area. If you are not intimate with the area, check using a online aerial map service to see if it is in a similar neighborhood.
- QUALIFY THE SOURCE OF COMPARABLES - Does the provider of the comps have a vested interest in skewing the comps? Real estate investment can be a tough business and like the ancient Romans, who knew a thing or two about betrayal, said ‘Caveat Emptor’, or buyers beware. Ask an agent for comparables who isn’t involved with your transaction. Most Realtors will be happy to help, particularly if you hint heavily you re looking for a good agent to look after the property once you have bought it.
- TRULY COMPARABLE - Is the comparable truly comparable? You might have a comp for an 1100 sq ft apartment which is the same size as the target and within the same zip code, however its still crucial to ascertain whether there is the same number of bedrooms, bathrooms, has it a garage or not? To put it into perspective an extra bathroom can easily add $5,000 on to a property, in the same vein a garage can add $10,000. Other factors that can affect the value in this way are the size of the lot, and the view.
- AGE - The age of investment property is important to understand as a newly built property carries a premium over a property 20, 10 or even 5 years old. This is partly a case of perception and also because appraisers consider the economic life span of a building. Typically 65 or so years and of course the less time left the less its worth.
Of course this is just a quick overview to give you an idea of the most pertinent factors that you need to evaluate when looking at comparables. The golden rule is to question everything.