3 Practial Steps To Help You Accurately Value Any Buy-to-Let Property Investment
If you are looking to grow a buy-to-let portfolio then learning how to value houses correctly is going to be one of the key factors in your success. Valuations can be confusing when you're just starting out but if you get this wrong, you could end up paying thousands of pounds more than you actually need to.
But it doesn't need to be like that if you take the time to educate yourself.
So in today's video, we look at the 3 core elements (and steps) you need to take to correctly value your buy to let property, along with why these factors are so important.
Check it out here...
Hello. In today's video, we're going to be looking at, a bit more about how to consider and look at property valuations. If you are maybe looking to buy a couple of properties at the moment, or you're maybe out there viewing properties, but you're unsure in terms of what the property might actually be worth.
How to actually value the property so you can get a bit of an idea on if you're maybe looking at the right ballpark in terms of what to offer for it, and certainly what the estate agencies and what the vendor is asking for it as well.
There's a certain couple of things you can maybe consider or take into account really when you're looking at property evaluation. I first started and got involved in property, and the very first property I purchased, I had no property experience. No kind of background or idea on how to value a property, and because of that, we clearly gambled.
When we look back now, we overpaid for what we could have got the property for at the time. Just because, really, we didn't look at a lot of different things that we should have considered in terms of checking things like the sale prices.
Checking things like the market comparables for direct comparable properties. Not just similar properties or properties in the same location, but ones that are ideally on the same street. Ones that are ideally the same amount of bedrooms.
There are certain things to consider when you're looking to value a property. I just want to give you a bit of an insight into that and a bit of a run through and cover some of those elements really in this video for you.
First of all, when it comes to doing valuations, there are three things to consider. Three main things to consider when it comes to what that property might be worth.
Check Sales Prices
The first one is sale prices. Luckily in the UK, you can easily get access to recent sale prices. When I say recent, usually, a couple of months out of date because it takes that long for the information to have come through from Land Registry, but that's certainly valuable in terms of looking at that as part of the data set to see what the property might be worth.
Recent sale prices for properties within a certain street, a certain postcode, a certain area. With lots of different ways, you can do that. I'll list some of the resources below this video, but you've got sites like Rightmove, where you can find tools for checking sale prices, within a particular area.
That's great to give you a bit of an idea in terms of what prices properties have sold for within a certain time frame.
Whether that's a year, or whether it's a couple of years ago.
You need to take that with a little pinch of salt in terms of what the market is due to that point in time. If for example, a market is going up in value. There's quite an increase in terms of activity happening in that particular area, then sale prices won't necessarily give you a direct result as to what's happening on that day, because some of the sale prices would now be out of date when you're looking at them say, three months back, six months back.
The market could have moved on by then and it could have changed completely and obviously, the prices could have changed and differed. It just gives you a bit of an idea in terms of what the prices should be worth the properties in the area and what they obviously achieved around that time frame that the sale prices are active or accessible for them.
That's one kind of data set to consider.
Examine the Comparables
The second data set is going to be on the market comparables.
There, you're looking at things, as directly comparable (as you can get). If you're looking at a two-bedroom terrace and there's a certain style, you want to try and mimic that type of property. That style, that obviously, the size of the property. There are two bedrooms, one reception room.
Try and compare that to another two-bedroom, one reception room. Not under the two-bedroom, two-reception room or three-bedroom, one reception room.
Obviously, you'll get the idea in terms of the direct comparables and the better. Obviously, the closer the property is, the better; as well if they're on the same street, perfect. If they're on the same road or side of the street, again perfect, because sometimes, some properties on the street might have one side that is going to be slightly larger in terms of the... I don't know, whether a yard, the front yard if they have one.
The size of the property, the layout.
All these different elements can change what the value of the property might be worth. Try and get a direct comparison, if you can. It's going to help. Again, that's taking to account really what the market is doing at the time.
Read Market Sentiment
That's where the third element comes into it. That's really market sentiment on what the individual, the estate agent if it's being sold by the state agent. Obviously, the market is telling you that it's worse.
If for example, you've got a property that's been on the market for say, a year, valued at a hundred thousand or two hundred thousand pounds, or three hundred thousand pounds, and it's not changed in price, and it's had no offers.
It's not really got any interest happening. Then, you can see that the value is probably incorrect, even if the sale prices are saying that it's about the right level. Even if the comparable prices are saying it's by the level.
If it's generated no interest, it is not getting offers, then it's not going to be worth that value because, at the end of the day, it's only going to be worth what somebody is willing to pay for it.
That's why you need to take into account market sentiment when you're looking at those house prices. How to use this in the real world. How to adapt that to some properties you are maybe looking at. For example, if you've got a property that you're considering buying. You've checked the sale prices, that all looks good.
It looks like you're on the right level or ballpark. You've checked the market comparable prices and then you think, "Okay, well a similar property is on for 5 grand more, 10 grand more, and 5 grand less."
Whatever it might be, but gives you a bit of an idea and insight in terms of what the level might be.
Then, you want to see how accurate are those market comparables. What's still the level of demand in the area at the moment. What's the level of how quick is the property is selling? How are they going for the market value, that type of thing? I put a couple of resources again under this video where you can check things like that in terms of time and market, and how long it takes for a property on average to sell. Those types of things.
What you really want to be doing, a little bit more research in terms of what other properties are selling for. Not just sale prices and on the market prices, but what their motivations are for those sales.
If you were to look at some comparables and you've got maybe a repossession down the street that's on the market for 10 thousand pounds less, then the reason why it's on the market at 10 thousand pounds less is probably that it's a repossession. Probably because they're trying to generate a lot of interest.
It might not go for that price. It might go for higher or might go for slightly lower, but it gives you a bit of an idea in terms of why those comparables are going to be slightly different.
By looking into a little bit more of an insight in terms of the reasons and the motivations for sales, of those comparables you're looking at. If you do, make a shortlist of maybe three or four properties that are comparable to the one you're looking at.
Don't just take them at face value and just say, "Well, this is this price, and that's okay. It should be what it's worth."
Do a little bit of research. Do a little bit of digging. Go and see the estate agents. Speak to the agents about why the vendor is looking to sell, how long it's been on the market.
Tools and Due Diligence
Again, there are some tools I can show you to save time on market and things like that.
That will give you a little bit of a quicker insight about a cheap, in terms of trying to get that data without having to speak to the agent. Certainly, try to find out why that vendor is looking to sell. Certainly find out why the motivation or what the motivation is, and how much interest it's had as well.
That's going to help you get a much better idea on what the potential market value might be. Look for those three core elements. Don't just look at sale prices, and don't just look at the market prices for comparables. Don't just consider marketing sentiments cause you think it's really boring.
Let's give any offer that we can to get the property locked in. Take into account those three facts and that will help you get a more rounded idea of what property evaluation should be, really, for that particular property.
Hopefully, that's to give you a little bit of an idea in terms of some elements to consider with your property evaluations. Again, below this video, I'll give you a couple of resources to look at. It gives you a bit more of an idea of, I suppose, certain things to consider when you're looking at a property.
It just helps to make sure you're on the right track. Make sure you're not going to really be paying over the odds when you're looking to put an offer in on the property. Obviously, you want to still achieve the best possible price you can. You don't want to be going in with silly offers in terms of on the market prices.
Sometimes, depending on the market, if it's going up, sometimes you have to. If it's stagnant, or if it's going down, you certainly don't want it.
You don't have to put, in full market value offers. You want to be buying the property at a discount, but you can't do that unless you understand what the market value might be. You can't do that unless you understand what the true properties and value are in that particular area at that particular point in time.
Easily, the same thing is that surveyors, estate agents, they all take into account as well when they're looking at properties. They don't just look at sale prices. They don’t just look at comparables in terms of what's on the market at the moment. They look at the whole picture. They look at what the market is doing. They look at the motivation behind properties.
Obviously, they check the detail in terms of, Does it need a lot of work doing to it? Is it kind of a rundown property derelict that needs a new kitchen, new bathroom? Is there a refurbishment? All these different elements come into place. They'll take that into account when it comes to the evaluation.