Real Estate

How to evaluate your property?

Before to direct selling your property it is important to start with something more basic - how to evaluate it. According to experts, there are four main ways to evaluate a property.

Based on price comparison.
One of the simplest ways to evaluate a property is by looking at similar properties ,which are for sale, in the area and neighborhood. Such statistics, however, you will find relatively difficult.

It may be based on a personal survey based on quotes of the people living in the neighborhood on the basis of quoted prices for the properties sold in the respective neighborhood or on the basis of concluded deals made by a property agency. Real estate agencies, however, are not particularly generous in sharing such information, which they keep exclusively for their clients.

Still, if you are a client of a large real estate agency, it can direct you to average prices in your area, based on sales.

Capital valuation of the asset.
This model is a little more complicated to evaluate the property.It sets out the principles of risk and alternative costs associated with investment in real estate.

It looks at the potential return on the rental investment and compares this return with the return on other investments, such as government bonds or special investment vehicles (real estate investors).


How to calculate return on investment?
Return on investment is a term used in accounting. It indicates how much of the invested funds have returned to the investor after deducting the costs associated with the investment. And while it sounds complicated for people without accounting education, it's actually very simple. The ratio is calculated by deducting the accompanying costs from the revenue generated by the investment and thereafter dividing the difference into the initially invested amount.

Let's say you bought a property worth 100,000 euros. After you renovate the property, which costs € 50000, you sell it for 200,000 euros. The calculations are as follows - from the sale amount of 200,000 EUR 150,000 (initial purchase price plus 50,000 EUR invested for repair). The difference of 50,000 euros divided by the initial invested amount of 150,000 euros and we receive 0.33.

When we multiply the ratio by 100, we will get the ratio as a percentage - 33%. Either the return on this investment is 33%, which is an extremely good achievement in an environment of record low interest rates.

Of course, for investors, it is also important for how long they have achieved this yield, ie. how long it took them to renovate and subsequently sell the property.


Based on Income Generated
This method focuses on the potential income that will bear the property. It is suitable for properties that will be rented and especially for commercial properties.

It is based on the annual rate of return on investment. For example, if a property costs a 120,000 euro selling price and the estimated rental income is 1,000 euros per month, then the annual return on the investment will be 10%.

Of course this is a very simple example. Investors are aware of concepts such as the present value of money and the fact that rental income received in the future will have a different value and inflation will also affect them.

These principles, made in the valuation of the value of a property, form the so-called "discounted cash flow" model, in which all future cash flows are valued to date.