Real estate investing is not for the fainthearted, but it is (also) not incisively rocket science. No matter who you are, how much income you enthrone or who you know, investing in any parcel of land boils down to properly valuating it, calling for calculations supported by market prices and location. Since a rental property is a semi-permanent, income-producing venture, it is noteworthy to assess the sales price against the anticipated proceeds. Even so, before finding yourself knee-high in more Byzantine mathematical calculations, first determine whether you are getting the most bang for your buck and do your homework in three decisive areas.
Valuation
In many cases, if the seller is working with a real estate broker worth his or her weight in salt, the asking price and the sales price ought to be communal. However, this is not always the case. Just because a seller is asking a certain price, does not set that price in stone -particularly when that price is immoderate. If your goal is determining a reasonable the price, you need a competent agent on your side
Comps
First thing is first; have your agent provide you a list of like, sold properties in the surrounding area, over the last 90 days. Concentrate on properties within 400 square feet of the subject (larger or smaller), exhibiting alike creature comforts to get the most exact calculations. Then, determine the average cost per square foot of those properties and apply that to the property you are interested in purchasing. If the price per square foot is on par with surrounding parcels, the property is priced right. If not, it is time to write an offer and substantiate it with proof, using your comps.
For example, if the average cost per square foot in a neighborhood is $15, and the property you are interested in is 2,200 square feet, multiply $15 by 2,200 to get a fair market value of $33,000. Employ that calculation in your bid and negotiations.
Appraisal
Unless you are a cash buyer, you will need an appraisal. Appraisals are bank valuations of worth, conducted by an independent third party and are the ultimate authority for all real property values. If, after you have seen comps, you are still uncertain of the subject property’s value, hire an appraiser.
The appraiser visits the property, measures it, constructs a list of pros and cons and then sets a value based on comparable properties nearby, appreciation and depreciation. In fact, appraisals are interchangeable with the service a real estate agent provides, but offers a more precise assessment of value, for a fee.
Once you have weighed the numbers, accounted for repairs or upgrades and estimated the potential return, you will find your answer. If the calculations come out favorably, it is time to scoop up that property for your own, before the next ravenous investor beats you to the punch. If, on the other hand, the property does not measure up, it is time to march on to the next potential rental property on your list.