How to Determine Value in a Property

When investing in real estate, determining the value of a property before you purchase is often the most important step. If you incorrectly value a property, you could end up losing a great deal of money.Before you begin however, you need to understand how valuing works. Just because a property has a great value, does not mean you should purchase it. You need to consider if a particular property is worth what you'll be paying for it. A property could meet their optimum potential for all of the following steps, but if the price is so high that you won't end up profiting after the flip, it isn't worth it.Instead, use the following steps to determine whether a purchase price is worthwhile.


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    Consider The School District. If you have the choice between to comparable homes at the same price, the more valuable of the two will be the one in the better school district. Understandably, sometimes you won't have a choice in the matter. House Flippers often have to take what they can get when it comes to finding good properties. Just keep in mind that you need to keep in mind the school systems of the town to gauge whether or not you are buying a house at the right price.
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    Assess The Neighborhood. One of the most important parts of determining the value is the neighborhood. Essentially, the neighborhood sets a bar for the minimum and maximum amount of money that a property is worth. A property in a run down neighborhood can only be worth so much. Eventually, you will reach a point in your rehab when spending more money will not increase the value of the home. Even if you were to line the house with a floor made out of gold and use Fabergé eggs as doorknobs, the property will not exceed the limitations of the neighborhood. Your best option sometimes is to buy a rundown property in a good neighborhood. That way, you can renovate and increase the value to match that of the homes around it.
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    Check Out The Setting. The setting is actually quite different than the neighborhood. Some obvious examples are things like a lakefront or a oceanfront placement. The value will increase if the property is near a nice park or in a country club. There are setting features that will decrease the value as well. If the home is near a power plant, and industrial park, or a factory, it won't be worth as much. Sometimes flippers overlook the fact that a property is near a heavily trafficked area like an airport, a railroad or a highway. Just make sure you do your research before purchasing.
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    Examine The Foundation. Some real estate experts say that you should find the "ugly duckling" in a neighborhood when you are searching for a home to flip. While this is true most of the time, if the property has structural damage, you'll want to look elsewhere. Damages to the core of the house like a cracked foundation, animal infestation, or a mold and ventilation problem can cost thousands of dollars and loose you a great deal of money. A rough looking house with strong bones is always better than a good looking house with a poor foundation.
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    Research The Market Competition. This is perhaps the one step that's out of your control. If you sell your property when there are many other comparable pieces of real estate in the same neighborhood being sold, you will have to lower your asking price. In contrast, if you sell when there are fewer comparably houses being sold, you can dictate the price to a greater extent.


  • Never purchase a home for more that 70% of the ARV, or "after repair value".
  • Ask a reputable real estate broker for an ARV estimate on a property.


  • Steer clear of homes with bad foundations, unless the price is so far below market value that you will still profit from it.

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Categories: Buying Property