CALCULATE THE VALUE OF YOUR PROPERTY WITH 3 EASY METHODS.

Property valuation is an important concept in real estate investing, so if you don’t know the value of aproperty, then you won’t be able to know how much rent to charge or how much to pay in property taxes and for how much amount that property needs to be sold.

 There are 3 main methods of property valuation that we will discuss :

 

  • Fair Market Value
  • Land And Building Method
  • Rent Method

 

  • FAIR MARKET VALUE : fair market value method of property valuation which is done to determine the fair market value of your propertyby demand and supply method.It is done with the help of 3 sub steps which are :
  • Step 1 :under this step if you are planning to buy or sell any property then you need to find comparable sales in that particular area which are either available for sale or sold in the last 6 months. It is always best to compare properties closer to the property in question. You need to check the per square feet rate of the property similar to the property you are looking for, in this you can take the help of online property websites like :

99 acres   Makaan  Indiaproperty  Magicbricks  Commonfloor, etc.

So if you are looking for a 3bhk flat in Sohna Road then find the per square feet rate of properties in the same society, you can even find it out from property dealers in that area or silmilar society in that area. You need to find out the rate of a raw property. So if a property is 1000sq ft. and was sold for Rs.1 Cr.

Now you will get to know that the rate is Rs.10,000 per sq ft. So now it will be easy for you to calculate the value of the property very easily.

  •  Step 2 : under this step you need to deduct at least 10% from the quoted value, so if you are looking at a property worth 1 Cr then it means it will be sold to you between 90-95 lacs as the property dealers and websites generally quote a higher price.
  •  Step 3 : in this step you will need to pay premium for your property which depends on certain factors like location, amenities etc. So if the property that you are buying is in a central business district or a City centre where there are more companies and business offices then you need to pay more.

If the property in question has schools, hospitals and easy transportation facilities then you have to pay more, eg properties near metro stations are expensive. Another important point is PLC or Preferential Location Charges mainly in case of commercial property, if it is road facing and has more frontage then be ready to pay at least 50-60% extra. In case of residential properties park facing properties and lower floors need to pay extra premium. East and North facing properties according to Vaastu also considered premium properties. So if you are considering a property worth Rs.1 Cr then if we add premium of 10-15% then the fair market value of the property would be 1.1 Cr.

 

  • LAND AND BUILDING METHOD : with this method we can find out the value of under construction properties. The sub steps are :
  • Step 1 : to calculate the per square feet costs of the components to be considered. The components are :
  1. Land Cost – you need to go through online property portals and find out the existing land cost in that area. Example if you are considering buying property in an area where the rate is Rs. 18,000 per sq yard and the property you are intending to buy is 400 sq.yd. The land cost will come out to be Rs. 72,00,000. Now you need to calculate the total built up area which is the actual area of an apartment and is lower than the total land area. So if the total area of that property is 400 sq.yd then built up area would be calculated by knowing the floor space index or FSI, total covered area in such case would be 200*9sq.ft which comes to Rs.7,200 sq ft. So now the land cost be calculated by dividing the total cost by the built up cost which in this case would be 72 lacs divided by 7,200 that comes out to Rs.1000/sq.ft.
  2. Building Cost – it is generally Rs 1500-2500/sqft. In tier 2 cities and between Rs. 2000-2500/sqft in tier 1 cities.
  3. Marketing and Overheads –to calculate this add the land and building costs and then add more 10% to them as marketing and overheads.
  4. Builder Profits –they are generally between 20-25% so add this to your cost calculate earlier.
  •  Step 2 : under this step you need to multiply the total component costs by the total area.
  •  Step 3 : in this step you will need to pay premium for your property which depends on certain factors like location, amenities etc. So if the property that you are buying is in a central business district or a City centre where there are more companies and business offices then you need to pay more.

If the property in question has schools, hospitals and easy transportation facilities then you have to pay more, eg properties near metro stations are expensive. Another important point is PLC or Preferential Location Charges mainly in case of commercial property, if it is road facing and has more frontage then be ready to pay extra premium between 10-20% for each premium factor.

 So the cost we came down to in step 2 will be added approximately with 10-15% as premium to get the property valuation with land and building method.

  • RENT METHOD : is the most easy method as we don’t have to take into account the property’s location, PLC, financial drivers etc. In the rent yield method we will find out the value of a ready to move in property with its rent. Rent yield is basically the rental return. In India rental yields varies between 3-4% in Residential areas and 6-8% in Commercial areas. To calculate the Property Value you will have to divide the Annual Rent by the Rent Yield.

 

 

 

 

 

 

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