Understanding property values before investing

Reading or hearing about the attractive benefits of real estate investment may lure you into making a substantial investment in haste. This kind of haste can potentially land you in a heavy loss rather than profit situation.

Real estate investment is a kind of sensitive and volatile venture. It requires a certain amount of self-education and exposure on your part to make a substantial profit. To understand property values is the first step to a profitable real estate investment. Even though it may take time to master the skills necessary to understand property values, you may benefit from the following information.

As part of learning the ABC’s of property value, it is relevant first of all to know that ‘comp’ is real estate jargon that refers to all the homes sold within a span of the last six months and within an area of two miles. So, when you target buying a home, first of all find out its listed price. Then compare this price with that of recent comps of similar quality and size.

Does the listed price match the recent sale prices? If the listed price happens to be less or even the same as the recent sale prices, you probably wouldn’t think twice and would transact the deal at your earliest convenience. Suppose you have decided to buy a three bedroom, two baths home listed at $150,000. If this price is $10,000 more than another three bedroom, two baths home sold only recently a few blocks away, you may jump to the conclusion that you are being taken for a ride. But that may not be the case.

What you should do now is to examine the sale prices of both the homes more closely by taking into consideration the differences between the home you want to buy and the closest comps. Find out details about the property priced $10,000 more. Does it have any special features, a bigger lot, upgrades or a pool? If you find answers to these questions in the affirmative, then the chances are that the asking price is quite reasonable. In order to figure out how much those extra features add to the value of a property, you can’t just depend on the facts and figures gathered from public information sources.

Glancing through online ads or Sunday newspapers won’t teach you the basics of property value. You will have to do some homework to make your own chart of comps. The key to your success is knowing as much as you can about the homes currently listed on the market. Make detailed written records of such properties in order to learn about property value in a systematic way.

For instance, if you come to know that a basic three bedroom, two bath home built on an average-sized lot sold recently for $160,000, whereas the same type home on a lot twice that size sold for $170,000 in the same neighborhood, you learn that a very large lot adds $10,000 to the value of a home in that locality. This kind of comparative study gives you a good understanding of the basic value of certain property characteristics. Update your knowledge by keeping up with online listings, visiting open houses and taking detailed notes on sales prices.

Once you have developed a sound understanding of property value and have gathered enough confidence, you will be ready to take the plunge into real estate investment.

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