Buying a home is one of life’s biggest steps. There are many factors that go into whether a real estate property will be valuable in 5-10 years, so determining what those are is crucial. You may have your own opinions on whether you believe property values will increase, but it’s best to be informed before you make any decisions especially since house buying isn’t something you do every day!
Also Read: 10 Reasons to Invest in Dubai Real Estate
Key Factors to Consider Before Buying Property
So here are four key factors, including tips on how to discover a latent defect and sales comparison approach and more to help you determine how much your property will potentially be worth in the coming years!
1. The Sales Comparison Approach
As with any other financial decision, it’s always best to compare. In real estate, that means using historical market data. You can use an online tool like Redfin or even view historical price trends on an MLS in your area. With both methods, you can pinpoint how many houses have sold in your neighborhood and over what time period they sold (you may be surprised at some of your findings!).
After gathering information on recent sales, you can then see how properties similar to yours have sold either for more or less—and adjust your budget based on what you find!
2. The Capital Asset Pricing Model
Now that you know what properties have sold for in your area, you’ll want to figure out how much they are actually worth. This value is called an asset’s book value, which is determined by looking at its liquidation value—what it would sell for if it were not used as an income-producing property. (Think about it like cars no one values their car more than what they could get for parts.)
To calculate asset book value, divide the market value by capitalization rate—the ratio between net operating income and price. All other things being equal, lower prices will yield higher returns.
3. Infrastructure Development
How much money has been spent in your area on key infrastructure that could benefit your property and others in it? This can be used to gauge future development. Have many new stores been built, or have schools opened in your area recently?
The more likely that growth will continue, making your property more valuable! (If these developments will make or break any part of your financial plan, you should make allowances for them when determining how much you can spend on a home.)
4. Local Economic Situation
How is your area doing financially in comparison to others, and what is your state doing? This can tell you how much demand there will be for new and existing properties. Any news about rising or falling unemployment rates, low-interest rates, inflation, etc., will impact property values over time—but they are not indicators of short-term value.
These factors are more important when deciding whether it’s a good time to buy real estate property. If an economy is thriving with low unemployment and cheap loans, people may be willing to spend more on real estate at any given point! However, if times are tough—like they were around 2007—it’s best not to invest in any major purchases like homes.
Consult an expert
In conclusion, remember that there are many factors that can determine if you’re getting a good deal on your home—and they all matter. You may think you know what will happen in your area over time, but only time will tell!
You can check out The 5 Best Suburbs Of Honolulu, HI as a recommendations while searching for the area to buy your real estate property.
And make sure you consult with an expert when making big financial decisions; whether it’s investing in real estate property or stocks or cryptocurrency, get good advice from stans tips or those who know more than you. It’s always better to err on the side of caution! Good luck!