How to Find Out the Value of a Building?
Many real estate investors think of building valuation or pre handover inspection when tax time comes around. Perhaps they have saved up money to use as capital for a new addition or replacement, but the real question is – what should you do with that money? Usually investors like to leave their money in cash form, for several reasons. A few are:
- inflation protection
- market stability
The usual thought with cash is that you don’t need it all at once (although that may change) and it will not be used right away, so your cash will be relatively safe – even if the economy tanks again and property values drop.
How to Predict the Market Price of Rental Properties?
- Another common question with building valuation service is whether to use a discounted cash flow (ACF) or an amortization schedule for depreciation. The amortization schedule is simply a fixed amount that is paid annually, whereas the ACF has a level which changes as the stock market moves up and down.
- Using a discounted cash flow allows you to calculate the gain or loss much faster and easier than using an amortization schedule. There are disadvantages to using a discounted cash flow, however, such as the difficulty of accurately predicting market prices, which makes it inappropriate for certain kinds of rental properties.
What is the Benefit of Using Discounted Cash Flow Method?
- Generally, most investors use an amortization schedule for depreciation because the taxes on depreciation are much less than the taxes on the property tax. However, some investors feel that the taxes on the building valuation are too high and they would prefer to allow the depreciation to accrue.
- Ultimately, you should decide which method is best for your needs. It is important to note that although most real estate agents recommend using an amortization schedule for depreciation, most rental property owners actually prefer the discounted cash flow method because it is simpler and more accurate.
What Should You Keep in Mind When having a Building Valuation?
- When setting the value of a building, it is important to remember that this is not just a price per square foot. Your building valuation should include the selling price for the property, the current market price for similar buildings located near your property, and the reinvestment you plan to do to improve your property over time.
You will also want to consider future capital improvements that you plan to undertake. These could include adding a pool, repairing the roof, or reconfiguring the building to make it more appealing to tenants. These are all things that will impact the value of the building but will have a significant effect on the market price of the property.