Investment Value

Investment Value

Investment Value

Investment value is related more to investment properties which have a return from rent etc. It is not so relevant when buying a home because this is a more personal thing which depends on factors such as the safety of the community, the character of the building, the location to public transport or family ties to the area etc. Thesecan all add value to a home. But to get a ball park figure of how much you should invest in an investment property to get a reasonable return you can use the formula below.

Investment value uses the income from the property to calculate the capital value. The more rent or other types of income it will generate, the more valuable the property becomes.

Capital Value = (1 i) x Annual Income, where 'i' is the yield value.

Different classes of property have different yields, e.g. residential, commercial, industrial. The yield is never fixed and changes depending on the economic climate. In 2006 it was found that residential property in Dublin was selling with a 3% yield. It is thought that a stable market has yields between 5-7%. The higher the yield, the worse the economy is doing, and the lower the value of the property. Subsequently the best time to buy property is when the yield is high and you are confident the rental income will continue into the future.

Example

If you are thinking of buying a house with a rental income of 12,000 per year, and you wish to buy the housewith a 6.5% yield. The value of the house will be:

1 0.065 = 15.38

15.38 x 12,000 = 184,500

If the property is not already being rented, see what rent they are asking for in similar local properties. This can be found out through rent or buy websites or by speaking to a local auctioneer. This method of valuation helps to insure you buy a property which will provide you with a good return for your money.

Some other factors which should be taken into accountwhen valuing an investment property are:

Possible future zoning of land to commercial / residential etc

More infrastructure development in the area in the future or public transport

Location relative to services and amenities, public transport, town centres, places of scenic beauty, etc

Footfall and road frontage

Existing planning not carried out or possibility of extending in the future

Neighbouring a property you already own

This is not a comprehensive list and you should get advice in relation to the property you intend to invest in. Theformula aboveis only an aid. At the end of the day a property is only worth what somebody is willing to pay for it, but it is good to be aware of this method of valuation.

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