When part-time property investors are considering a purchase, it is important to know that they are paying the land’s true market value. With prices that are too high, it can be hard to recoup your investment later and make a worthwhile profit. By understanding how to evaluate a parcel's value, you can better ensure that the price you pay reflects current market conditions.
There are a number of factors that play a part in the value of a piece of property. Local supply and demand, the property use and more will have an effect. By gathering all of the relevant information, you can be sure that you have the knowledge needed to make an informed choice. Keep the following in mind when assessing whether a property is offered at a fair price.
The Knowledge of a Local Expert Is Crucial
No two properties are exactly alike. Features unique to each one will drive differences in value, even within the same geographic area. However, a property expert — such as a local real estate agent who specializes in land — can help you find the information you need to learn about local market trends. Property experts can research sales of similar properties to see what other parcels have sold for in the past. They will be able to assist with information about zoning, laws and local regulations that can affect the use of the land and its value.
Other questions to ask a local property expert include information about recreational use, wildlife in the area, and nearby amenities and attractions. This person can help you better understand a region that may be unfamiliar to you and explain what the area has to offer that might be of interest to future buyers.
Appraisals Need to Be Up-To-Date
Market conditions can change quickly. An appraisal that was performed a year or more ago may not reflect current market conditions in the area. Make sure that the land’s price reflects the latest market conditions, as well as changes in the state of the property. Has power been run to the property since the price was last assessed? Is there a fence that was installed years ago and is now in need of replacement or repair?
In general, real estate professionals recommend using appraisals performed within the last six months. These will provide a clearer picture of what a property is worth now. Ask for an up-to-date appraisal before making an offer.
Look at Elements You Can Use to Inexpensively Boost the Land's Value
Sometimes, when land is being sold by an owner who is out of state or a person who inherited the land from a deceased relative, there is not a lot of care put into the property before sale. If a piece of land is generally sound but looks unkempt, this can work well for you during the purchase and for your later sale.
In some cases, the current owner will not be willing to put in work and just wants to sell quickly. If you are game to take on aesthetic tasks once the property is yours, you can increase its value quickly.
For instance, overgrown brush and shrubs, weeds and unpruned trees can make a property look forbidding. Tending to these can add to the lot's curb appeal and make it easier for you to later sell at a premium price. Other factors that can lower a property's value include abandoned garbage, falling structures (such as sheds) or safety hazards (such as old wells or broken fencing).
Assess which tasks need to be performed and what it will cost to complete them. If you identify these correctly, you can often purchase a property for less than its eventual value.
Understand Factors Like Timber Value
Sometimes, the value of the land is tied up in what is growing on it. When looking at plots of land, do not forget the immediate value that trees can yield if they are harvested. A forestry expert can help you get a clear idea of what timber on a piece of land is worth.
When deciding whether you wish to harvest trees for cash flow, however, look at whether removing trees will enhance or detract from the property's value. In some cases, clearing the land can broaden the property's use. In others, tree cover can protect local wildlife, which can increase a property's recreational value.
Learn to Recognize Market Indicators
No one can predict the future value of any property with total accuracy. However, factors such as coming development can drive prices up. Other factors, such as the closure of a major local employer, can drive prices down. By learning to recognize what may drive prices in the future, you can make a better decision about whether a piece of land is being offered at a fair price.
Additionally, you should be able to understand what details were used when establishing the land’s value. Are any factors inaccurate or missing? Be sure that everything from property borders to assumptions on the appraisal are current and accurate. It is never wrong to ask more questions.
Looking at all of these factors can help you get a better idea regarding what you should offer and what price you should be willing to pay. Carefully consider not just market conditions now, but what is likely to happen in a given area in the upcoming years. By looking at the data, you can get a better idea about whether a property is a good value now and what sort of profit may be possible in the years to come.
Rick Eisen is a co-owner and broker for Legacy Lands, LLC. He worked at the Chicago Board of Trade as a commodities broker for nearly 30 years and uses his experience when investing in real estate.
