How do you recognize value in real estate?

The true value is in the Real Property, not just the Real Estate.

So, what are the rights that are involved in Real Property? Well, there is the right to use the property, the right to build on it, the surface rights, any mineral rights. There might even be air rights associated, such as a piece of property in Toronto where the zoning allows for a building to be built above the building on the piece of land, or a bridge. There is also the right to sell the property, lease the property or the right to do none of the above.

When we look at the value of a piece of property, we look at the value of the land, the buildings thereupon and the highest and best use of that property due to any rights associated with that property.

So when I look at a piece of property, my first question I ask myself is – is this the best use of this property?

For example, I own a house in my city. If for some reason the city changed my zoning and instead of being zoned single family they changed it to multi-family, the best use of my house might be apartments. The fact that I bought this house with a house price tag but could make money off of it as an apartment building, gives it extra value.

A piece of land outside of town may be zoned commercial but have limestone on it, but there might not be any need for commercial, despite it’s zoning. My job is to figure out sometimes what that piece of land could be used for/advertised for that would net the seller the highest proceed. In that case, a Quarry would be it’s best use provided that was allowed by the municipality and a Quarry license was available. This is where research comes in.

Figuring out the best use is the first step in figuring out if a piece of Real Property has any real value.

The next step is trying to figure out if it could be worth more in the future, thus making it a sound investment. Let’s say the property is complying with current zoning and is already being used for it’s highest and best use; we then look at the market activities for that area. Are prices going up? Is it a sellers market? Is there a strong job market ? These are all indicators that the investment will go up in price.

The other thing I ask myself when I buy property is this – How much money will I need to spend to bring this property up in value? If I can spend 100K on renovations will it net me a higher return when it comes time to sell? Are there any special skills as an investor that I can bring to the table that will give me an edge over other investors to make money off this property? Things such as being a Realtor, experience in renovations and project management, ability to manage a rental at a cost below what most people would spend. If that is the case, then I see it as a really good investment, because I’m going to get the property at the same price as someone who would have to pay more to complete those tasks.

If I look at a piece of property and I figure that I can meet it’s highest and best use, cheaply and easily with the skills I have and it is in a sound market, I judge it to be a good investment for me.

That being said, I have bought plenty of property based on it’s intrinsic value to me, such as a waterfront property up north that won’t meet any of these criteria. But for me, the value was there in the future benefit of camping there, or my husband using the property for hunting. This would be an example of not buying for long or short term investment. gated community in palakkad, community living villas in palakkad, villas in palakkadSometimes the value is just valuable because the property fulfills a need for the buyer.

Recognizing the true value in a piece of property is a skill set. Most buyers just buy their family home and don’t think of these things. Even the house I live in as my family home was purchased with these points in mind.

This is where a Realtor can either help you or hurt you. Even if the only property you ever buy is your family home, whether it’s a condo downtown Toronto or a farm house in the woods, all of these factors come into play.

There is so much in valuing a piece of real estate that goes beyond the price tag. Do your research and you will do well.

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