3 Approaches to Estimate Investment Property Market Value

There are three basic methods used by appraisers to determine the fair market value of income producing real estate that real estate investors might find helpful when buying investment property. In this article, we will discuss how each one works and then show you how you would estimate the market value of a subject income property based on each method.

Income Approach

The income approach method for determining a property’s market value is where you use the return you desire from your cash investment and then capitalize that percentage by the net operating income being produced by the property.

Let’s say, for example, you desire a 8.5 percent return on your investment and you estimate the net operating income (NOI) for the subject apartment to be $38,500. Here’s the computation:

$38,500 / 8.5 = $452,940

You would be willing to pay $452,940 for the apartment complex based upon its income stream and your desired return on investment.

Market Data Approach

The market data approach makes use of a list of properties comparable to the subject property and determines a property value-price per unit. In this case, these comparable properties should be in similar areas, with similar apartment sizes, amenities, appearance and rent structures, and should all be buildings that have sold recently.

You would then divide the prices at which each building sold by the number of units in each apartment complex to determine an average price per apartment to use as a multiplier. The average price per unit is then applied to the subject income property.

Let’s say, for example, you create a list of six comparable apartment complexes in the local area and determined that they sold for an average of $60,000 per apartment. By multiplying the $60,000 average unit price times the number of units in the subject property (we’ll assume there are seven), you arrive at market value of $420,000 based on the market value approach.

Cost Approach

The cost approach method estimates what it would cost to replace the entire apartment complex. In other words, what would it cost to buy the land and build a building identical to the subject property?

First, you must determine the land value. If a study indicates comparable land is selling for $10 a square foot and the subject property is on a 100 x 200 foot lot or 20,000 square feet, then the land is worth $200,000.

Second, you must determine what it would cost to replace the site improvements such as the parking area, lawn, shrubs, trees, etc. You determine it would cost about $30,000 to replace them.

Finally, you must compute what it would cost to duplicate the building. If the subject apartment complex has seven one-bedroom apartments of 600 square feet each or a total of 4,200 square feet, and it would cost $60.00 a square foot to build, then the cost of a replacement structure will be $252,000.

3 Approaches to Estimate Investment Property Market Value

There are three basic methods used by appraisers to determine the fair market value of income producing real estate that real estate investors might find helpful when buying investment property. In this article, we will discuss how each one works and then show you how you would estimate the market value of a subject income property based on each method.

Income Approach

The income approach method for determining a property’s market value is where you use the return you desire from your cash investment and then capitalize that percentage by the net operating income being produced by the property.

Let’s say, for example, you desire a 8.5 percent return on your investment and you estimate the net operating income (NOI) for the subject apartment to be $38,500. Here’s the computation:

$38,500 / 8.5 = $452,940

You would be willing to pay $452,940 for the apartment complex based upon its income stream and your desired return on investment.

Market Data Approach

The market data approach makes use of a list of properties comparable to the subject property and determines a property value-price per unit. In this case, these comparable properties should be in similar areas, with similar apartment sizes, amenities, appearance and rent structures, and should all be buildings that have sold recently.

You would then divide the prices at which each building sold by the number of units in each apartment complex to determine an average price per apartment to use as a multiplier. The average price per unit is then applied to the subject income property.

Let’s say, for example, you create a list of six comparable apartment complexes in the local area and determined that they sold for an average of $60,000 per apartment. By multiplying the $60,000 average unit price times the number of units in the subject property (we’ll assume there are seven), you arrive at market value of $420,000 based on the market value approach.

Cost Approach

The cost approach method estimates what it would cost to replace the entire apartment complex. In other words, what would it cost to buy the land and build a building identical to the subject property?

First, you must determine the land value. If a study indicates comparable land is selling for $10 a square foot and the subject property is on a 100 x 200 foot lot or 20,000 square feet, then the land is worth $200,000.

Second, you must determine what it would cost to replace the site improvements such as the parking area, lawn, shrubs, trees, etc. You determine it would cost about $30,000 to replace them.

Finally, you must compute what it would cost to duplicate the building. If the subject apartment complex has seven one-bedroom apartments of 600 square feet each or a total of 4,200 square feet, and it would cost $60.00 a square foot to build, then the cost of a replacement structure will be $252,000.

YouTube – How to Use Video Marketing to Build Your Business and Broadcast Yourself Online

Internet Marketers are raving about the explosive benefits of using online videos to market your business. The new wave of online videos has become an impressive option to market anything online. As an Online Business owner myself, I’m constantly hearing about YouTube and how great it is for your business. But keep in mind, there is a right way and a wrong way to do this! Video Marketing can definitely help with advertising your business, but you will need to be clear and careful about how you go about it.

Utilizing YouTube and other online Video websites to market your business through video ads is being incorporated and attempted by many, but may only prove to be truly successful for only a few. Here are 3 important points to think about when producing your YouTube videos to broadcast your business online:

1- Have Your End Goal in Mind- Even though there is tons of bad content floating around YouTube and the web, if you are planning on using this method to market yourself and your business, you absolutely cannot waste your opportunity by allowing any of your videos to be bad. You will need to put some clear thought into your script and what you intend to say and project before you start recording. An appropriate and effective script will contain the information you will need to appear inviting and engaging to your audience. Stick to your topic, be clear and to the point. Don’t ramble on or go off on tangents or you will confuse your audience and lose their attention. The point of your videos will be to excite and entice your viewer into your opportunity, create excitement and curiosity and invite them to your site for more information.

2- Production and Quality Matters- Even though there are so many people doing this and posting their amateur videos on YouTube, that does not mean they are experiencing any tangible success. Don’t think that you can just record yourself anywhere, doing or saying anything, and it will make you money. Take your time to create videos which will brand you as someone who has helpful information and who will be beneficial for someone else to work with. Your viewers will respond to your properly executed and informative content. Be sure you take the time needed to produce videos that have energy and will make your viewers excited to meet you and do business with you!

3- Call to Action- When making your videos, it is important that you are very clear with your viewers about your objectives and that you are sure to ask your customers for something in return. You should have a clear and compelling call to action, inviting your viewer to visit your website for more information. They should feel as if they will be missing out on something very important if they do not click on your link or visit your site!

YouTube and online video marketing is such a great way to market and build your Internet Business. When you are sure to follow these tips, you will definitely have an important and effective tool under your belt that is sure to take your Online Business to the next level!