When people come to think about buying or selling a house, they move on to the procedure of Independent house valuation, which helps them understand the value of their house as per the rates of the market. Though they are not quite aware of the details of property valuation in detail, they make it a point to evaluate their house only at the time of selling or buying. It has to be understood that there are a lot many theories that are included with the valuation of a property these days.
What is Income Method?
Income method is a type of property valuation method that estimates the worth of a property according to the revenue potential. The income that is generated that is calculated can either be from the rental income or from the re sale value. This method is pretty complicated, but is used widely by investors when they are about to place a value on any kind of property investment or to assess whether what they are investing will be profitable in the coming future.
For being accurate with the help of income method, one has to rely upon certain assumptions. They are:
• Resale value of property
• Income that will be gained from renting the property
How to calculate the value of property
For calculating these assumptions the current data of properties similar to the one owned is made use of, for getting a good idea on the value of the property. Valuation of this kind comes into reality when the income generated should be set against the capital so as to find out how property will become profitable for us, for estimating the property’s profit, is should be compared to a similar investment or same capital expenditure. This will help in assessing whether the property guarantees investment in future.
Can you calculate the risk factors?
The most difficult part of any kind of investment in property is to calculate the risk. Though we can research about the past, we will not be able to get the right solution for the same. It is a true fact that predicting about the property market is simply an impossible task. Though we can put an estimate on the property by taking a look at the current data and trend, it is extremely difficult to predict the speed or magnitude of the risks.
Income valuation method does not attempt to find out the current market situation. On the other hand, it depends mainly on the property value in the coming future. It takes the value of the future and compares it to the price that has to be paid at present. The estimate of the final sale value and the income for rent mainly depends upon predicting the market, which is to an extent very difficult.
Though this method is mainly used by serious investors and not by home buyers, we find that this method has a lot of advantages over the method of comparable sales. The advantage of this property valuation method is that it concentrates on the individual. It values the property to them and not the market. If you are very much serious in investing property, the income method of valuation can help you to know the large profits you are in search of.