Discover the Property Analysis Essentials

LOS ANGELES - June 15, 2020 - PRLog -- THE KEY FIGURE IN EVALUATING INVESTMENT PROPERTY

The key figure is the internal rate of return (IRR) after taxes. By comparing this figure with the IRRs from other investments, you will be able to determine the best investment for you.

It is critical to understand why the IRR is important when analyzing real estate investments. The IRR shows the time value of money, and it reflects cash flows based on present values. Return on investments, in terms of purchasing power, might actually be less, depending on how the cost of living has changed. Knowing the IRR will help to further quantify your investment opportunities.

Your analysis should be based on two types of returns, growth rate and replacement costs. Growth rate projections are based on historical trends. An analysis performed using this rate will give you a conservative IRR. An aggressive IRR is obtained by projecting a future selling price based on future replacement costs. Use both when analyzing buildings. Knowing both will give you an edge when negotiating.

What you should be looking for is steep growth. Buy complexes below the cost of replacement. Sell them when values are at least equal to or greater than replacement costs. This is how to become wealthy!

A SOUND DOWN-MARKET STRATEGY

In a down market, your strategy is to buy as far below current replacement cost as possible. To determine the current replacement cost, consult local building associations or your web site for the Marshall &Swift Valuation Service (M&SVS). M&SVS provides information on the construction costs of different types of buildings through-out the United States show how costs differ based on style for three types of buildings.  Local square footage costs can be calculated using the conversion chart applicable to each area.

ANALYZING REAL ESTATE INVESTMENT

The methods to analyze real estate investments depend on the availability of information. They are as follows:

• Qualified appraisers

• Comparable sales data or "comps"

• Gross multiplier approach

• Capitalization rate method

• Essentials of real estate investment analysis software

We prefer using a specially designed computer program in conjunction with input from consultants and comparable sales data. Since the final decision rests with us, we want to be absolutely certain of our sources.