Tips for quick comparison of investment property
All property investors should be able to utilize a couple of quick and dirty techniques to ascertain whether to make an offer on any property. You’ll certainly want to compare comparably priced buildings (comps) to see if their recent sales prices are in line with what you hope the purchase price will be for any particular property. And as you gain experience, you’ll find you’ll get better and better at understanding local comp values in your particular area.
Return on investment
But the most important ingredient in determining the relative value of any given piece of investment property, is the projected Return On Investment (ROI) calculation. Determining the projected ROI on any property will allow you to quickly and easily compare many properties you see in any given day.
To minimize the sheer volume of properties to consider making an offer on, try to figure out the relative cost per square foot for each property you consider worth your while. Using a price per square foot comparison is a good way to rule out obviously overpriced investment properties from your offer list. This will save you time and running around town energy as you search for your next investment property to make an offer on. And it should help you create a range to compare apples with apples for different investments. However, this type of analysis won’t help determine what a good offer price should be.
The simplest way of calculating the return on any piece of investment property, you’ll need to first gather all the investment costs. These include your total down payment, your loan costs, any renovation/repairs costs, and your property taxes, insurance and mortgage payments. Make a projection for your selling price based on comps, then subtract the loan balance you’ll have left when you eventually sell it.
Once you subtract the loan balance from your sale price when you sell, you’ll have your net proceeds from the sale. Then just divide your total cost into your net proceeds, and voila, you’ll have your total return on investment. Then you’ll be able to compare other possible investment properties one to another. You can then choose the optimum ones to make offers on as you compare apples to apples. With this quick and simple technique, you’ll be able to fly through a large volume of potential investment properties, winnowing them down to a choice few that will provide the optimum ROI’s.
photos courtesy of flickr.com, carterrealtyagency.com, nathalykolp.com, newdenverrealestate.com