Why You Must Not Mistake Real Estate Market Value for Best Value

Prudent real estate investing requires a sound understanding about a rental property's market value, and why it may not always be the best value for the property.

Market value doesn't always equal a property's "appraised value" or "sales price." Market value refers to the selling price of a property only when that sale conforms to the criteria of a market value transaction. However, when you estimate the market value of a property based on the sales prices of other properties, you must always investigate the terms and conditions under which the comparative properties sold. A small apartment complex down the street that just sold for $350,000, for instance, doesn't mean that a similar nearby property will sell for $350,000. The sale price depends on the terms of the sale and the detailed features of each property.

Remember, too, that the accuracy of your market value estimate directly relates to how well you describe the property's features. Carefully identify the differences (positive or negative) that make a difference. To make smart investment decisions, real estate investors must have ample knowledge about features, properties, lot values, construction costs, and neighborhoods to adequately base their investment decision on wise judgment.

Also, realize that market value and past appreciation rates do not forecast the future. Even if you buy multifamily property at a bargain, you're not going to make money if the property is about to fall in value. Whereas, even if you pay full market value, you can make profitable returns if the property or the location where the property is situated is about to take off.

Here's the bottom line. Whereas, you never want to buy income property without an accurate understanding of its market value, understand that market value itself does not tell all you need to know to make profitable investment decisions. Besides figuring out what a property is worth today, be sure to answer these questions, too: Will the property generate adequate cash flows? Can you expect the property to appreciate? Can you add value to the property?

Remember, successful real estate investing depends on knowledge; so the more knowledge you obtain and correctly analyze, the better and more profitable deals you will make.
James Kobzeff is the developer of ProAPOD - superior real estate investor software since 2000. Determine the profitability of rental properties in minutes! Go to => www.proapod.com