Investment property valuation is arguably the most important skill that you can learn in property investment.
Knowing how to value property can make or break deals. It can make or break your property business.
Making the wrong call on a property valuation can lose you serious money.
I know. I’ve been there!
You soon learn that your well-researched opinion of property value can be more accurate than the opinions of property professionals that you may ask.
Investment property valuation is part of a wider topic of “property due diligence“.
Due diligence refers to the property investment research that you should carry out before you make the decision to invest. Other aspects of property due diligence are covered — along with how to gauge the rent of a property — in our separate rental property valuation guide.
Before we go any further, exactly what is the “value” of a property? It is the amount that exactly one buyer is prepared to pay for it.
For example, thousands of people might be prepared to pay £1,000 for a particular property. Only three people might be prepared to pay £90,000 for the same property. But if just one person is prepared to pay £103,650 for it, then that is it’s value. Put simply, the value is set by the market.
The most accurate representation of a property’s value is given by comparables, or “comps”. Comps are prices that similar — that is similar spec, location and condition — properties have sold for recently.
Notice I said sold there, not advertised… This is a crucial difference — one that you forget at your peril!
Sites like OurProperty.co.uk, nethouseprices.com and MousePrice.com (I find the former easiest to use) give actual sold price information that is searchable by street and postcode.
The problem with this info though is that the property type and number of bedrooms — or condition for that matter — is not recorded. This means that in streets where there are mixed housing types, it can be difficult to know if you’re comparing apples with apples. Cross-referencing with Google street view can give you more confidence with this.
You can also use this data to find out what the seller paid for their property and when. This is a very useful indicator of current value.
(Note that at the time of writing, for reasons unknown to me, sold prices do not seem to be available for Northern Ireland.)
Check the likes of Rightmove for an indication of what you might be up against were you to list a property for sale the area.
But proceed with caution!
These are not prices that properties will eventually sell for… they are prices that owners and estate agents hope they will sell for.
If you can’t find the comp you’re looking for on typing in the postcode, use the Search radius selector on the left to increase to ¼ of a mile and so on until you hit something. Remember that the further away you go, the less accurate the comp will tend to be.
The Rightmove “Price Comparison Report” feature is handy as it compiles current listings, withdrawn listings (were they overpriced?) and actual sold prices.
Although most properties for sale these days can be found on Rightmove, other portals worth checking are findaproperty.com and zoopla.co.uk. Primelocation.com has more high-end listings. If you’re researching Scotland, GSPC.co.uk and ESPC.co.uk can be useful too.
Zoopla.co.uk has a pretty cool property valuation tool. Well, cool in theory anyway…
In practice it can be wildly inaccurate so do take its output with a pinch of salt. I still like to throw it into the mix when valuing property though as it can sometimes back up a valuation if comps are thin on the ground.
Interestingly though, Zoopla is slowly but surely gathering data on numbers of bedrooms, reception rooms and bathrooms for pretty much every property in the country!
This is absolute gold when you cross reference it to the actual sold prices from the sites above. Do remember that this data is submitted by the general public and probably not audited.
Zoopla also stores historical sales schedules for properties that have been listed for sale on its site — also very useful.
Once you have arrived at your own investment property valuation, it can be helpful to call around two or three local agents to get their opinion.
Agents can be cagey, though, unless you’re booking a valuation appointment so the best approach is to pretend you are looking to buy in the area and ask what you’d expect to pay for the type of house you are valuing.
Hometrack is an independent property analysis firm that maintains an index of UK house prices. They have paid-for valuation services, although I have not used them myself.
House.co.uk has a lot of interesting house price stats, split by geographical area.
You have to be very careful with comps in an area that you are not familiar with. Here are a few gotchas to look out for whilst carrying out your investment property valuation:
I hope this has given you a better idea of how to value property… Use all the above sources to distill down to a valuation that you feel confident with.
Always err on the side of caution!FREE Case Study »
Along with “how the heck am I going to finance this?”, this is one of the first questions any investor asks himself.
My answer? “It depends.” Come on, you knew it wasn’t going to be a simple one!
What does it depend on? It depends very much on what your investing objectives are and also on what your strategy is. We’ll take a look at those now…
If your main objective is long term capital growth then you’ll want to invest in a slightly more upmarket area. These areas will tend to have a healthier property market and therefore discounted deals may be harder to come by.
I’m guessing that capital growth may not be your main concern though.
In days gone by, investors looking for cashflow traditionally bought in the poorer areas where property values were lower and the rents were proportionally higher. This gave higher yields. This was my strategy in the early days, until I discovered new creative investing techniques.
I found that by using creative property investment strategies, I got more cashflow without the “hassle factor” that I got with high-yielding, low end properties. I didn’t have to deal with low quality tenants or maintenance problems any more.
If you’re using lease options then you’ll find that they work best in solid first time buyer / starter home areas. You’ll be looking for an area with reasonably priced houses (not flats). Maybe terraced or semi-detached homes with front and back doors and a garden.
If you’re going down the multilet route then you can’t get much better than a University area. At the very least you’re looking for an area with decent employers that have a younger demographic.
It doesn’t matter how good a deal you got if there’s nobody there to rent it once you buy it! Doing proper due diligence is essential in any property deal. That way you’ll know up front who your target market is and how easy they will be to come by.
Check transport links. Unless you’re targeting an area where people mostly drive and there is parking available, you need to pay close attention to transport links. Probably any more than about 10 minutes walk to the nearest bus stop or train station is going to cause you problems. London tenants may be willing to walk a bit further.
Where to invest in property is dependent on your location too.
Most people in the UK will have a great local area to suit their strategy not too far away from where they live. Especially when you’re just starting out, I would keep it to an hour’s drive away from your home max — preferably 30 mins. I have a few flats hundreds of miles away but I’m glad most of them are closer to home.
Sticking closer to home will be to your advantage when it comes to research too as you’ll already have some local knowledge.
Please don’t get hung up on finding the next property “hotspot”. Sure, doing your research properly may help you luck out and buy in the next hotspot but hotspots are by definition speculative. If you are using the right techniques then you will be making your money by getting a discount when you buy rather than crossing your fingers and hoping for a speculative increase.FREE Case Study »
Are you looking to learn how to find discounted property?
In this article, we’ll teach you how to find investment property with big discounts and the ins and outs of property lead generation.
First off, it’s a good idea to understand what makes a property discounted… Unless the seller is unaware of the value of their property, it will be discounted because the seller needs to sell.
In other words they are motivated.
If you are dealing with someone who just wants to sell and not someone who needs to sell, then you are wasting your time!
Estate agents can be a great place to find discounted property, especially in slow markets. But…
Many of the best deals are not even on the open market!
So how do you find them?
Answer: get them to come to you!
Just like in any good business, you need to have a varied marketing plan, with several different methods that get you leads.
Try a new method every few weeks or every month, perfecting each before moving on to the next.
It is imperative that you test and measure any marketing that you do. There is no point in paying for an ad in the local paper week after week if you have no idea if it is working.
This means that you need to ask everyone who gets in touch with you how they heard about you. And record it.
If you do this then you will know which marketing is working and which is not. You can then spend more on the stuff that’s working and stop the stuff that isn’t.
Here are a few marketing basics that should save you making expensive mistakes:
The list below could go on and on – it is limited only by your imagination! Test some of your own ideas… use the good ones and throw away the bad.
In part two of our guide, we reveal an amazing website you can use to find cut-price property in your area. We’ll also look at my favourite property lead generation method… internet marketing.
What’s your favourite way to find discounted property? Share it with us by leaving a comment below…FREE Case Study »