What property values should you know as a real estate investor?
In real estate investing, there are several values you need to know when looking at a deal so you can understand your potential profits and cash flow.
The better you know your values, the more likely you are to be a successful investor.
5 Kinds of Property Values Investors Should Know
Let’s go over the 5 main values you need to know. To find any of these values, you must compare like-properties in like-areas to get an accurate number.
1. As-Is Value
This is the market value of the property in its current condition. Aka, what you could buy it for right now. With no repairs, no updates, and no other conditions. You take it as it sits with this value.
2. After-Repair Value (ARV)
This is the estimated future value of the property once all repairs and updates are completed. This is a major value used in fix and flips and under-market rental purchases (think BRRRR).
ARV is contingent on the quality and quantity of work completed on the property. It is not a true market value but a guess about what it will be in the future.
3. Appraised Value
This is the value of the property as determined by an appraiser whenever they do an appraisal. Lenders use this value to determine the current amount they can lend on.
The appraised value is usually based on comparisons, like homes that have sold in the same area within the last 6 months. It’s also based on the condition, size, location, and features (like number of bedrooms, bathrooms, garage spaces, etc.) of the property.
4. Market Value
This is the value the market is willing to pay for the property right now, based on the current supply and demand of like-properties. Market value may be higher or lower than appraised value for reasons such as:
- Demand for homes is greater than the current supply of homes. This means there are more buyers than their are sellers, so buyers have to overpay to get a property.
- A property needs to sell faster than market conditions. This limits the supply of buyers able to close quickly, in turn lowering what the market will pay.
- Quick positive migration. This means there’s a big uptick in the number of buyers moving into an area within a short amount of time.
5. Loan-to-Value (LTV)
This is the percentage rate a lender will lend up to on a property. If a lender states they lend up to 80% LTV, then that means they’ll loan $80k for every $100k in appraised value.
Lenders will have different LTVs based on the type of loan they offer. Typically, cash-out loans and borrowers with low credit scores will get the lowest LTV options.
What Else Do Real Estate Investors Need to Know?
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