Basic Tips to Evaluate Property Value by Yourself

• 30 May 2018
• Property Focus
• 8704 Views

You might often wonder how others always make money from real estate investment or wonder why they always choose the right property to invest in. This is because they know how to evaluate property very well. However, property evaluation is not as complicated as you might think, and in fact, it is quite simple.

Mr Sorn Seap, founder and CEO of Key Real Estate Co., Ltd., a real estate analyst, and former vice-president of the Cambodian Valuers and Estate Agents Association (CVEA) has exclusively shared with Construction & Property Magazine readers the five methods of how to basically evaluate property.

1. Comparison method

It is the simplest and easiest way to evaluate property. For example, if you want to buy a plot of land, just go around and compare the price to that of land in the nearby area and analyse the differences.

2. Investment method

This is the method to calculate the return yield if you decide to invest in property. In other words, it is a way to measure how effectively you use your money. The question you should ask is how much you will earn from that property? Is it higher than the deposit of your money at the bank? There are two types of return regarding this context which are rental return and the rise of property prices. To analyse the rise of property prices, you can just simply find out the average annual price rise of property in the area. After getting the data, you can plug that average property price rise to the average rental income. Then, you see the overall average return if you invest in the land.

3.Cost method

The cost approach is the method to calculate the real estate value but summing the land value to the construction value built on the land, but deducting the depreciation value of that building. The older the building is, the higher the depreciation will be. This method can help you see the real value of the land.

4. Waste analysis method

This is quite a complicated method. It is the way to consider whether the land is good with or without construction. For example, if we want build 10 houses on the land and sell them for USD100,000 each, you get the total income of USD1 million. Then, you have to deduct that USD1 million with the costs and expenses of all the construction process. The result of the deduction is the land price. If it is cheaper than the market price, it means that this land can be used to build anything. You will not make any profit buying this land. The only way you can do so is to build a vertical building if the land price is very high.

5. Income calculation method

This is quite similar to the investment method. But, it is only used with properties which are being used for business. For example, a golf course, clubhouse, car park or similar. We measure how much the money that business makes to know the property price.

You can choose to use any of these methods depending on the condition of the property you want to evaluate. You can use more than one method to have a more accurate assessment. However, in terms of serious and in-depth evaluation, you should find the experts to evaluate it for you to avoid a high risk on your investment.

 

Mr Sorn Seap, founder and CEO of Key Real Estate Co., Ltd., and a real estate analyst

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