Repairs help increase the market value of a home

4 Ways to Increase the Market Value of a Home

When you put your home on the market, more often than not, you’ll make the most profit by selling to a traditional homebuyer. But this isn’t always the case. If you’re considering selling, you should think about how attractive your property might be to an investor.

Investors evaluate property using different criteria than homeowners. As Chris Romany, a Realtor with House Solutions in Orlando, Florida explains, “Investors typically buy homes to do one of two things: fix it up and sell it, or they’ll buy and hold it to let the capital appreciation increase, and in the meantime, rent it out.”

Given these scenarios, here is what you can do to increase the market value of a home and make it more attractive to investors:

  1. Get Rent. If you haven’t already, actually rent your home out. See how much rent you can get. If you can show that your home commands high rental rates, it’s that much more attractive as an investment property.
  1. Show Expenses. The flip side to income (i.e. rent) is expenses. If you can provide a few years of expense history along with actual income, investors understand the business of the property. They can track monies coming in and going out and evaluate what the property is worth to them.

Repairs help increase the market value of a home

  1. Repair for Renters. Going back to the first point, in order to achieve the highest rental rate possible, you want to make your home as enticing to renters as possible. As Romany points out, you want to make it so they can walk in without any issues – for example, no plumbing or AC issues. What’s more, fixing up the kitchen and bathroom, or even improving the front of your home, can make the difference in getting a higher rent, and keeping renters year after year.
  1. Repair for Investors. Investors also want a turnkey property so it’s wise to take care of necessary repairs so they won’t have to spend lots of money fixing up the property. Al Baydoun, Investment Director of Detroit’s US Investor Group, explains: “One of the main things that affects their return on investment is maintenance and repairs. Instead of making costly cosmetic improvements to your home, the best way to make it appeal to investors is to improve the mechanical systems like HVAC, installing new electrical panel, or new plumbing. Homes with newer mechanical systems require less maintenance, thus helping the investor’s bottom line.”

In some markets, rents are growing at a faster rate than home values. If you live in one of these areas, it’s smart to value your home both ways, as it just might be worth more to an investor. This is particularly true if investors have bought several homes or properties in your vicinity, as is currently the case in markets like Orlando, Detroit and Houston. These are signs that the market value of a home may be higher in the eyes of investors.

You can use APV’s Home Rental Value tool to help determine what factors might increase your home’s value to investors.

home value

What is the value of my home?

If you’re looking to sell your home, or are just curious about what it’s worth, you’ve probably looked at neighborhood sales comps or even spoken to a local realtor. While these things are helpful, you may not be getting the full market picture and might be undervaluing your home.

Here’s why: your house may be worth more to a real estate investor than a traditional homebuyer. You should try to figure out what your home is worth as a rental property.

Apartment Property Valuation has just rolled out a new tool specifically to help homeowners find the value of their home to investors.

San Francisco homes

Real estate investors look at multiple factors when assessing properties. In order to get a better idea of what real estate investors would pay for your home as an investment property, here are some general questions to consider:

What’s the income-generating potential?

There are various things that inform this, including how much the home can command in rent and how strong the demand is for it. If you live in a market with low vacancy rates, this could push the price higher. Or if your home is in a location with high year-round vacation demand, that could also signal potential high potential income generation, which gives you more leverage.

What’s the condition of the home?

High quality construction and appealing features often mean the home will not only rent out more easily, but also attract more premium renters. It’s not a guarantee, but if renters are content with the home, and are satisfied with the neighborhood amenities, they’re more likely to stay, bringing down vacancies, which also makes your property more valuable.

What are the potential expenses?

While operating expenses – property insurance, management and maintenance fees, utility costs – are relatively set, every home has out-of-pocket expenses. A newer home in top condition means expenses will likely be lower because things are in good working order. If there’s little concern about sinking money into renovations and repairs, you could fetch a higher price.

And then there’s the ever-important factor of location.

A prime neighborhood – one that is safe, attractive and accessible – makes properties within it a better investment. A home in walking distance to shopping and restaurants or a design by a well-known architect could drive value up even further.

Suburban aerial view

All of these factors go into determining the property’s cap rate – the ratio of net rental income to the purchase price, which is always essential for real estate investors to consider when determining the value of a property.

The more you look at your property through the eyes of a real estate investor, rather than just assessing comparable sales or per-square-footage value, the clearer picture you’ll have of its true value.

Give APV’s new Home Rental Value tool a shot. Your home may be worth more than you think!

How to Determine the Value of a Duplex Rental Property

A duplex can be evaluated in the same way that investors value apartment buildings.

The rental income and expenses for both rental units should be combined to determine the Net Operating Income (NOI). Investors can then apply an appropriate cap rate to the NOI to arrive at a valuation. As is the case with any investment property, investors will need to make an estimate of the required Annual Capital Expenditures, since this figure influences the cap rate.

For tools and resources to determine the cap rate and valuation for duplex rental properties,
visit apartmentpropertyvaluation.com.

How to Calculate a Cap Rate for Real Estate without the Purchase Price Variable

How do you determine the cap rate of a property if the purchase price is unknown?

One approach is to look at cap rates from sales of comparable properties. But what if comparable sale data is unavailable? Or what if you think there is a real estate bubble, and it’s making you reluctant to rely on cap rates from recent sales?

In these instances, you can use historical risk premiums to determine what the cap rate should be using the formula shown below.

Cap Rate Formula

This infographic illustrates how to determine a cap rate when the purchase price is unknown. For more information on the subject, visit our cap rate formula page, which includes videos and a more detailed discussion.

Trying to determine the cap rate for a specific property? Use our free tool to find the cap rate and value for any apartment rental property in the United States.

Current Cap Rates for Apartments

Apartments buildings in the United States currently sell for about a 7% cap rate on average, and this average has fluctuated between 6.5% and 7.5% for the last ten years. These figures provide a ballpark estimate.

Since no investor would, or even could, buy all of the apartment buildings in the United States at once, knowing the average cap rate for the whole country has limited practical value. Undoubtedly, what most investors want to know is the appropriate cap rate to use to value a particular building.

US city apartments

Some turn to the Internet looking for the answer and inevitably come across research reports on cap rates prepared by national brokerage firms. These reports are helpful to some extent, but just about all of them fall short of providing what investors really need: enough information to come up with a cap rate for a specific apartment building.

Most research reports list the average cap rate for all apartment buildings that have sold throughout a city over the prior quarter or year. Some go further and show the breakdown of average cap rates for Class A, B and C apartment buildings within a city. This sort of detail is a small step in the right direction but still not all that helpful.

What’s the use in knowing the average cap rate for all apartment buildings in the city of Chicago? It’s a really big city with many different neighborhoods, and some areas simply have higher real estate values than others. For example, properties in Lincoln Park command a premium over comparable properties on the South Side.

Common sense tells us that several factors go into valuing real estate. We know intuitively that a brand new apartment building on the hottest corner in town ought to be worth more than an older building in a depressed area. It follows that the cap rate for these two properties should be different too.

current cap rate for apartments

That’s why multifamily buildings need to be evaluated on a case-by-case basis. What are the factors that go into determining a cap rate? It’s all the things your intuition tells you: location, building age, construction quality, interest rates, rental growth rates, etc. To determine a proper cap rate for a unique piece of real estate, investors need to consider all of these variables.

Lenders and investors often rely on local appraisers to value property. To be sure, appraisers can be an excellent resource, particularly for information about sale prices at comparable properties. For those looking to use the Internet to find current cap rates, there’s an excellent, free tool available at www.apartmentpropertyvaluation.com. The website prompts users to input location, income and expenses, and information about the physical characteristics of the building. It then returns a cap rate and valuation based upon all the factors our common sense tells us to consider.