How To Evaluate Local Residential Properties: A Step-by-Step Guide

Selecting and Inspecting Comparable Properties

The present report undertakes to describe the local residential properties. For this purpose, a detailed analysis is being conducted in respect of the local properties present in the locality. The following report follows all the fundamental principles, concepts and methods for the purpose of determination of the value of the property. After which the results that have been obtained from the exercise is undertaken (Baum et al. 2017). The analysis of the properties based on these principle will bring the pros and cons of the property in the forefront. The main reason for conducting this research is to establish a decision regarding the profitability of investing in the property for the purpose of earning future returns or cash flows.

A selection of two properties has been made. One of them is a freestanding property and the other one is a unit or apartment that can be rented out or utilised for short stays. The main purpose of that property will be to generate some amount of side income for the owners.

1. Unit or apartment-

The first consideration will be given to the unit or apartment. The main purpose of this property will be to let it out for earning rent in the future. For evaluating the property several factors will have to be considered (Crosby and Henneberry 2016). They are as follows:

1. The local area and the surrounding-

The local area and the surrounding of the property will have to be observed objectively, in order to determine whether it is possible to stay for a short while in the property or not.

1. Façade of the building-

It has to be given due consideration that the façade of the building should be attractive enough that it can attract the students and the tourists for renting it. There are several mediators present in the market both offline and online that can act as a mediator between the customer and the owner of the property (Saunders et al. 2017). These mediators play a crucial role in enhancing the value of the property.

1. The interiors of the property-

One of the key points that are being considered by the prospective tenants and the owners too is the interior of the building. The elements of the interior of the property include the number of bedrooms it has, whether there are attached toilets, not, whether the kitchen is open or closed and the space available for the living room.

1. Locality-

The locality of the proposed property must have all the common amenities nearby. For instance, train stations, hospitals, the super market, colleges and other landmark institutes.

Describing Comparable Properties

The property is placed at the heart of Altona. Within a walking distance, there are beaches, parklands, cafes, shops, transportation and it takes a short drive to reach CBD. Hence, as the location is at the centre of the city all the amenities in respect of everyday requirement and a bit of relaxation required by the individual is going to be available at ease (Mulley et al. 2016).

The main purpose of selection of the property was to establish a good source of revenue from it in the future. Due consideration was also being given in respect of the locality in which the property is located to determine the utility that is going to be provided by it in the future (Sangha et al. 2017).

The property that has been choses is ‘309/105 Pier Street Altona Vic 3018’.  The property is currently offering each feature that is needed for making any property lucrative for the students and the tourists. The property is offering all the required modern amenities along with access to natural beauty and relaxation in the form of beaches and parks.

The determination of the value of any property is considered tricky the reason being that there are multitudes of factors that are needed to be considered for the valuation purpose. They are as follows:

1. The properties in the neighbourhood:

The properties that have been sold in the locality between periods of 8-12 months give an objective idea about the value of the property at which it can be sold. The value can be determined with the help of the circle rate prevailing around the locality.

1. The financial and debt expenditure:

The value of the value must be including the value of the loans and the interest to be paid thereupon. The reason being that these are outflows to and increase the ultimate expenditure in respect of the property (Blackledge 2016).

1. The Net Income approach:

In case of valuation of the property based on the revenue or income to be generated by it in the future, the income should be net of expenses like maintenance charges, property taxes and other miscellaneous expenses related to the property.

1. Gross rental multiplier method:

The method makes use of the previous rentals and the recent sale price of the property for calculating gross rental multiplier. The Gross Rental Multiplier is in turn responsible for determining the value of the property (Ayedun et al. 2015).

1. Inflation rates:

The value of the properties is seriously affected by the use of inflationary measures such as discounting rates and the fluctuations in the inflation rate of the economy. There are plethoras of other factors that have to be considered for determining the circle rate of the properties.

Estimating the Value of Subject Property

For the purpose of valuation of the property under this method, an effort has been made to establish the average prices of the properties sold in the recent past spanning for a period of 8-12 months.

The details pertaining to the properties are as follows:

Name of the property	Sales Price.
2/222 Civic Parade Altona	685000.00
14 Charles Road Altona	740000.00
1/40 Rayner Street Atona	780000.00
152 Maid stone street	785000.00
2/24 Rayner street	1020000.00
3/100 Railway St. Sth	705000.00
1/5 Phair court Altona	1018000.00
1/125 Blyth Street Altona	869000.00
58 Romawi Street	1225000.00
2 Loagan Avenue	955000.00
Total Price	8782000
Average Price	878200.00

This method makes use of the previous sale price of the property for determining the current gross rent multiplier. The gross rest multiplier will then be used for determining the current value of the property.

From the historic, the previous sale price of the property was around $150000. The rent that was being earned from the property during that period amounted to $425 per week.

Hence the gross rent multiplier of the property would be = 152000 /425*52

         =6.87

The two methods of calculating the value of the property i.e. the average sales price method and the gross rent multiplier method have significant differences among them. For the purpose of valuation of this property, the method of average value of the property will be taken as it takes into consideration the current market condition and conducts a comparison between the related properties (Yong and Khoi Pham 2015).

Following factors must be kept in mind for determining the value of the property:

1. The estimated sale price of the property:

It can be said that the property is expected to be sold at a price of $ 700000 to $850000. The reason for such high price is due to the amenities that are being provided by the property and the high demand of rental properties in the area.

1. Annual rental amount:

As per the present condition of the market and the present demand for the property, the rent for the same is around $375 to $425 per week. As per this, the annual rent that can be earned from the property boils down to around $22100.

1. Return on investment:

As per the available information the return on investment of the property boils down to = $22100/$152500 * 100 = 14.50percentage. Hence, it can be said that the return on investment of the property is significantly high.

1. In addition to that, it is expected that the returns generated by the property will increase over the period of time, the reason being that the demand of the property is increasing every day. In the short run, the property is excellent in respect of earning rental income. Several mediators present in the market make sure that the property is subjected to the public in a right way (Abidoye and Chan 2017).

The frees standing property is generally used by the owners for the purpose of residential and official purposes. Such kind of properties stands independently and without having any support from an external structure. The general purpose of buying such kind of property is to make it a residence. The primary feature of such kind of properties include ample amount of parking space and commercial complexes (Wong 2016). These properties can be kept for long-term investment purposes and for the purpose earning long-term capital gain. The earning potential of the property will depend upon several factors. The factors are as follows:

1. The size of the property:

Factors to Consider When Evaluating a Freestanding Property

As the property is mainly purchased for residential purpose, one of the prime concerns will be to make sure that the space of the apartment is decent as compared to an apartment, which is purchased for letting out. In addition, there must be ample amount of parking space (Abidoye and Chan 2016).

1. History of the property:

As the property is going to be used for residential purposes, it is of utmost importance that all the facts of the property are properly analysed. This includes that factors that had affected the prices of the property in the past and may likely alter the demand for the property in the future. The knowledge of the property significantly enhances the resale value of the property (James et al. 2017).

1. Interiors:

In case the property is used for residential purposes, it must be ensured that there is ample amount of space for the furniture to be purchased an kept by the family. There must be enough space for the entire family and provisions for the space for the guests who visit the family occasionally. The property must provide sufficient space for installation of cubicles if the same used for office purposes.

1. Facilities nearby:

Several amenities are needed to be monitored or observed for evaluating the company. These factors include the availability of nearby airports, shopping malls, super markets, schools and offices. The reason being that it increases the investment value of the property by increasing the value addition to be done by it in respect of the residents.

The property has been chosen keeping in mind that the location of the property greatly influences the price at which it can be sold in the future and the returns that can be expected of it in the form of rental income.

The property is located at 15 Kaley Street Miami OLD 4220. The property has a land area of around 647 me.  The property can be used for several purposes such as retail shop or even a warehouse for storing industry inventory and this can also be converted into a sophisticated office by the owner (Parker 2015).

The property can be considered as a pristine property that offers immense opportunities in respect of earning lease income and by providing an environment that facilitates the conduct of the business profitably. Several corporate houses are on the search for such properties that can add immense value to their business.

There are several principles that are needed to be considered for determining the value of the property. They are as follows:

1. Cost or bae value method-

Under this principle for the purpose of determination of the value of the land, the several elements and their respective costs will have to be adjudged in the beginning and the summation of that will provide the resultant value of the property. The elements that are needed to be factored in for the purpose are value of the land on which the property is built, this must be adjusted with indexation effect on the price and the expenditure incurred in respect of the construction of the building (Poon and Brownlow 2014).

1. Capitalisation of the revenue method:

Under this method, the annual estimated revenue to be earned from the property is divided by the capitalisation rate of the property. However, it has to be noticed that exact amount of the inflows to be generated from the property canon be ascertained with complete objectivity. Only estimation can be made in respect of the revenue to be earned. Hence, it is advisable that some scientific method is employed to determine the revenue of the property (Jones et al. 2015).

1. Comparison sales principle:

Under this method, an effort is made to determine the price of the proposed property by analysing the prices of the similar properties in the locality. The method uses historical and relevant data to determine the estimated price of the property.

Name of the property	Sales Price.
33/28 Chair Lift Avenue, Miami	493000.00
9/10 Mountain view Avenue	401000.00
EEL/1 Great Hall.	387500.00
4/3 Redondo Ave.	145000.00
31 Dawn Parade	665000.00
11/10 Fraser Avenue	495000.00
113 Knobby Parade	890000.00
19 Lesley Avenue	740000.00
22/1 Great Hall Drive	370000.00
Miami Villas unit 97 Landau Court	425000.00
Total Price	5011500
Average Price	501150.00

For calculating the value of the asset, the value of the property 19 Lesley Avenue should be taken as the area covered by the property is similar to the present property and the amenities provided by it are similar.

Hence, for the purpose of calculation of the value for the property, it will be taken as $740000.

The present method uses the previous rental price of the property for the determination of the current GERM. The current GERM is going to further aid in the valuation of the property (Parker 2016).

Historically the property was having a rental income capacity of around $85000 and during that time, the property was listed for $775000. Hence, the gross rent multiplier of the company is equal to $775000/$85000 = 9.12.  At present, the rental income of the property is 90000. Hence the present value of the property is $90000 * 9.12 = $820588.

Following factors are needed to be considered:

1. Estimated sales value of the property:

By utilising different method of valuation, it is clear that the property can be sold at any price ranging from $775000 to $821000. The range has been reached keeping in mind the value of the comparable properties and the gross rent multiplier method.

1. Annual rental amount:

The annual rent of such property amounts to around $85000 to $95000 per annum.

1. Return on investment:

The present return on investment of the company amount to 90000/ 775000 * 100 = 11.61%.

Conclusion:

The analysis that has been undertaken above suggests that there are various factors that are needed to be factored in for the purpose of determination of the value of the property being proposed to be bought by the owner. The various factors include the local market conditions, the surrounding of the property. In addition to that, there are several factors in absence of which the relevance of the report could not have been enhanced. These factors include the prices of the similar properties etc. the report also presented the opportunity to understand the trend in the sales price of the buildings and the rent earning capacity of the various properties. It also lays emphasis on the fact that there are huge fluctuations present in the market and this in turn affects the rent earning capacity of the property.

References

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