Investor property values?
Real estate investing revolves around knowing your values to know your potential profits and or cash flow.
The better you know your values the more likely you are to be a successful investor.
We have several different values that are used in our industry and it is good to know what each are and how they affect your real estate investing.
Remember in any of the values you must compare like properties in like areas to get the true value.
Here is a quick definition of the 5 top values used in our industry.
As is value.
The market value the property would demand in its current condition. No repairs, no updates and no other conditions. You take it as it sits.
After repair value (ARV).
The estimated value used in fix and flips and under market rental purchases (think BRRRR).
This is the estimated future value of the property once all repairs and updates are completed.
ARV is contingent on the quality and quantity of work completed on the property. It is not a true market value but a guess on what it will be.
The value of the property determined by an appraiser on a certain date in time.
Appraised value is used mainly by lenders to determine the current value they can lend on.
Appraised value, on homes up to 4 units, is based on a comparison current like home sales in the area. These home sales must have closed in the last 6 months.
Appraisers will take into account the condition of the properties, the size, the location and the features of the homes.
These features typically include number of bedrooms, number of bathrooms, number of garage spaces, and any above normal views.
The value the market is willing to pay for that property at this point in time.
The market value may be higher or lower than the appraised value.
Market value is based on current supply and demand of like properties.
Conditions that would cause market value and appraised value to differ are:
- The demand for homes is greater than current supply of homes. Large number of buyers and limited sellers. Buyers may have to overpay for a property.
- A property that must sell faster than market conditions. This limits the supply of buyers able to close quickly and lowers the amount the market will pay.
- Quick positive migration. A big up-tick in the number of buyers moving into an area within a short amount of time.
Loan to value (LTV).
The percentage rate that a lender will lend up to on a property.
A lender may state they can lend up to 80% LTV on a particular property.
This means they will loan up to $80k for every $100k in appraised value.
80% of $100k is $80k.
70% of $100k is $70k
60% of $100k is $60k
Lenders will have different loan to values based on type of loan they are offering. Typically cash out loans and borrowers with lower credit scores will see lower loan to value options.
Looking for what Value-add properties are? We have a blog on that here.