Back to all insights As an investor in real estate, an accurate valuation of your investment property is crucial to making the best possible investment decision. In addition, conducting property valuations by a qualified investment broker will help you know what your property is worth. Therefore, it is vital to keep up to date to make the best decisions when considering selling your property.
Like any investment, timing is essential. An accurate property valuation on your investment property will help you sell high when the timing is right. It will also allow you to understand values and opportunities to scale up your investment portfolio.
Understanding what a property valuation is and how IPRG can help you make the best return without leaving money on the table is essential.
What is a Property Valuation?
A property valuation is essentially determining the value of your property through a calculation performed by your IPRG broker. To conduct the property valuation, you need to understand the numbers. Each investor has their way of calculating an investment return, but we’ll focus on the five most important. These are Cap rate, Price per Square foot, Gross Rent Multiplier (GRM), Price per Unit, and Cash on Cash return. In addition, those numbers include the mortgage payment, property taxes, insurance, down payment amount, rental income, price-to-income ratio, gross rental yield, capitalization rate, and cash flow.
Factors that Affect Your Property Value
When calculating your property value, several factors can impact the final value of your property. Property size and unit configuration are some of them, as the price per square foot is one of the most common metrics used to value a property. Along with the property’s square footage, the number of bedrooms and bathrooms in each unit and the amenities included in the building can affect the value.
Factors include location, condition, and upside remaining to add value. If there is deferred maintenance, that can negatively affect value due to the new owner needing to invest in updates. A rule of thumb is that the higher the property’s income, the more valuable it will be.
Lastly, interest rates and supply and demand are factors to consider in a property valuation. For example, suppose it’s a seller’s market like the current market. In that case, your property’s value will most likely be high due to the property demand.
How IPRG Determines Your Property Valuation
There are many things to look at and factor in when doing a property valuation. IPRG, like most real estate brokerage firms, focuses on specific calculations to ensure you get the best information and maximize your return on your investment. The items we focus on are:
Cap Rate:
Cap rate, also known as capitalization rate, is calculated by dividing the normal operating expense of a rental property by the property value. The cap rate formula is an easy way to compare similar properties in the same market or location.
Price Per Square Footage:
Price per square footage is derived by dividing the property’s price by the property’s square footage.
GRM:
GRM stands for Gross Rent Multiplier. It is determined by price divided by gross income. This metric is used to decide if the investment will be worth it. The higher the GRM, the less the investment, the longer it could take to pay off the property.
Cash-on-Cash Return:
This calculation measures the amount of cash flow compared to the amount of cash invested. Cash on cash flow divides the annual cash flow by the total cash invested, which measures the return for a certain period.
Knowing which calculation to use all depends on your investment strategy and goals. Working with IPRG, our expert real estate brokers will help you determine your property valuation without worrying about the calculations.
Property Valuations with IPRG are the Key to Your Investment Success
When investing in real estate, a property valuation is key to knowing what your property is worth and how to maximize your return on investment. At IPRG, we’ll first walk you through the numbers needed to calculate the valuation, the factors to take into account, and the financial calculations to conduct your valuation. In addition, we understand market trends, how investors look at investment properties, and how banks will finance them. So reach out to us at IPRG to get your property valuation started.