Rental Investments: Understanding Apprai...

"Nowadays people know the price of everything and the value of nothing."
~Oscar Wilde, Irish poet

It’s true, isn’t it?

As investors, we’re often caught up in the price of properties, and we sometimes forget to consider the long-term value that these investments will bring.

Hey Moguls, Chris Clothier here…

When you think of property price and value, it’s natural to also think about appraisals. And that’s exactly what I want to discuss today: appraisals, and how the value of a home differs from the value of an investment.

I don’t want to spend a ton of time on this, only because I don’t want to get your mind – as an investor – focused on the wrong area. But I think appraisals are an important topic, because they impact any investment that you’re looking to make.

What I want you to understand about this is... appraisals are opinions.

For example, you could create a lineup of appraisers in front of you, and each one would give a slightly different value. And who’s to say which of them is wrong?

The simple fact is: Appraisers are going to value different things – well – differently. They will attach higher or lower values to various aspects of the home, based on their personal opinions and expertise.

So, at my company, our job is to determine a property’s value range (i.e. from $200,000 to $250,000) and to communicate that with investors, on the front end of the investment.

How do we do this?

We use our knowledge and expertise to identify comparable sales that are either lower or higher than the subject property.

The beauty of this, for you as an investor, is to remember that each property will be a long-term investment for you. You’re looking for value in a property. And value isn’t always what a third-party appraiser says is value.

What I mean by that is: The value of the home is different than the value of the investment.

So, how can you tell the difference? I’m glad you asked…

Value of a Home vs. Value of an Investment

Let’s break this down a bit...

To do this, we’ll use the example of a car. Think about a 2015 Honda Accord. It has value, and it’s a popular car that many people like to buy.

value You could have two red Honda Accords in front of you, and someone is going to tell you that the value of both of those cars is “X.”

But, upon closer inspection, you might discover that one of the Accords has new tires, a recent tune-up, thorough maintenance records and recently updated upholstery. This Accord has been meticulously brought “back to life,” so it doesn’t feel like a 2015 Accord anymore. It feels almost brand new!

So, of course, this Accord has more value than the other 2015 Accord, which doesn’t have any of those improvements or upgrades.

Now, keeping that example in mind, this is exactly what my company does with houses.

An appraiser might be accurate when it comes to the value of the property, but not the value of the investment. So, we help investors determine the value of the investment.

Remember this as you move forward with your property investments. Think about what each home is going to provide in value to you. For instance, has the time and care been taken on that property to justify the cost for you, as an investor?

I can promise you – regardless of what an appraiser designates as the value of a home – it will have a much greater value when you look at it in terms of an investment... because it will perform long term.

How Do You Find Value

Remember, you want to make sure you find value, and that the value you find is more than just a price. When you’re looking at potential property investments, which characteristics indicate good long-term value to you?

Make a plan – Figure out a method for determining the investment value that works best for you.

Consider the long run – A home may have a low price now, but what is its potential as a long-term investment?

Think before you act – Not every low-priced property will be a smart purchasing decision. Carefully consider each purchase before putting in an offer.