Make Money Investing in Real Estate: Accurately Determining the Value

Making money investing in Real Estate starts with determining the true or actual value of the subject property. There are many factors affecting the prospect of making money investing in real estate, but none more important. Since this is the maximum amount a seller could expect to receive for a given property, it becomes the starting point for negotiations. Mess up here and it could become difficult to make money on the deal or at the very least the ideal profit you had envisioned.

Perhaps, a good place to start initially is with an online service such as Zillow.com. This is a free service, but never trust their "value" of the property. Enter the address to pull up the property and click the "comparables" button. This is the best use of this site and it shows what has sold around your target property. Knowing the square footage, beds/baths, year built and location of your property (On the railroad tracks? Near a highway? In a neighborhood or bordering a neighborhood?) are important criteria for determining how closely these 'sold' properties match or compare to your subject property.

When you check the comparables, get them as close in square footage, beds/bath number and year built as you can to your own property. Zillow also shows when they sold, how much they sold for and how far away they are from your house. Aim for a sold date within 6 months if possible, and under ½ mile away, but the closer the better. Also, look at the map to see if a major barrier exists; (e.g. a highway running between your house and the comp properties). This could certainly affect the actual value of your property. If the comp houses are all in a neighborhood, and yours is just outside of the neighborhood, then it will most likely be valued lower, depending on the comp properties.

Next, you can go to the county website (if they have one) and check the property's history and what value the county has determined for the given property. However, these assessment values are notoriously inaccurate compared to the market value. Typically, depending on the technique used by that county to determine the property value, this number is on-average, too low. Also, it is much trickier now to determine if these values are accurate because of the market bubble in many areas and whether your county has recently reassessed property values. In my county, for example, all the properties were recently reassessed and the values went up. For some properties I have checked, the values are very comparable now to market value, but for others, they are over-valued. So, as a word of caution, use the county tax site to determine how much the taxes are and the prior purchase prices of the subject property when available.

Also, you can pull surrounding addresses on the tax assessor site to compare properties to yours and ,on many sites, check for updates made to your property if it's older. For example, when the details of the structure are listed, you can see if the electrical is standard or below average, or if any additions have been added, etc. If the electrical service is 'below average', then you have a good idea that it will need to be updated and can share this information with your buyers for accurate repair estimates. And always evaluate the property yourself, since the tax records could be outdated or even inaccurate.

All that being said, the most accurate way to determine a property's value, outside of an appraisal, is by acquiring actual comparables pulled by a realtor from the 'multi-list' or MLS, as it is commonly referred. The information they can access on the MLS includes the listing information, sales history, comparable sold, comparable 'for sale', and much more. Realtors can be really helpful, especially when you want to get an accurate history of the property so you can negotiate the best deal with a seller. So, make friends with a realtor or two who would be willing to help you. Ideally, you want a realtor who is accustomed to working with investors since they understand the process better and typically provide better information.

Just remember, learning this process is crucial to making money investing in real estate. Do it correctly and it will assure you a bigger profit potential. Done incorrectly, it could break some deals and eventually you and your budding career as an investor. Grasp the basic information here and get out there and put this knowledge into practice, which is always the best way to learn!