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    • The Main Property Valuation Methods
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    August 7th 2019best property in dubai, best real estate investment, Dubai Market, Dubai Properties, Dubai Property Market, dubai real estate

    The Main Property Valuation Methods

    The value of the rental property is one of its most important features. It is important to know the why the value of the property is imperative before knowing the valuation methods.

    Property valuation is the keep concept in the real estate investing, without knowing the value you will not be aware about the rent you have to charge or how much tax to pay.

    The way to find the properties value is through home appraisal. Home appraisal is a professional opinion of the real estate asset at a particular time. Market conditions, location and many other factors influence the value of a property.

    The three main property valuations methods are as follows;

    • Sales Comparison approach– It is also known as the market data or comparable sales approach, it is mostly used for land and residential real estate, specifically single family homes. The property is compared with other properties that are similar based on their sale prices. A property is found to be similar when they are almost alike and have been sold in a years time. To account the differences in comparable some changes are made to their prices. Based on factors that influence a properties rent. Location is of prime importance. The square footage, number of bedroom and bathrooms, how old/new the house  and the market condition during purchase effect this approach.
    • Cost Approach– A real estate investor should not buy a property for more than what it will cost him to replicate a said property. This approach first uses the sales comparison approach to find the value based on the comparable. Once this is done the estimated costs are found keeping depreciation in mind.

    This approach does not take into account residential or income property real estate but properties that are not sold like schools, government buildings and hospitals.After finding the land value it is added to the building costs of the real estate property. Building costs can be found by the cost of a square foot and multiplying It by the total square footage of the comparable. Once both of these costs are found they are subtracted by the depreciation costs. Depreciation costs include physical      deterioration costs ( deterioration that can be repaired), functional costs (aspects of property that are not desirable) and economics obsolescence.(deterrents based off location, for example being next to a loud airport).

    • Income Capitalization Approach– This method is used for income properties, for example apartment buildings, commercial real estate and multifamily homes. This approach takes in account the return on investment and net income for a property.

    It is further subdivided into-

    a)Direct capitalization is focused on property’s income by estimating the properties annual gross income. Depending on the vacancies the effective gross income is estimated. Finally, the net operating income is calculated by subtracting expenses.

    b) The second approach consists of gross income multipliers. Properties that were not initially bought as income properties but are used as such are used in this method, for example family homes. The monthly or annual gross income of the rental property is calculated. The sales price of the property is divided by the rental income. This gives the gross income multiplier which is used to find property’s market value.

    Being aware of the valuation methods is important for real estate appraisal. A basic idea should be known by landlords and investors before investing in any property.