How does a buyer know that the price quoted for a property is fair? Usually, developers arrive at a rate based on how much nearby properties are selling for. There is a sound method for a buyer that helps them arrive at the threadbare value of a property. Start off by asking two important questions. What net rentals will the property fetch? How will the rentals grow in the future?The pitfall of concerning oneself with the rate/sq.ft is that it is often dependent on the price the last person bought a property in that locality for.
By asking questions about the rentals instead, you can arrive at a more accurate estimate.It is important to realise that the price of a property quoted in the market is usually higher than it actually is. The premium quoted over the right price is called a ‘speculative margin’. It is crucial that a buyer know if this ‘speculative margin’ is reasonable or off the charts.
Of course, one may debate that eventual property appreciation may make up for initially poor rental yields, but appreciated values, even when high, aren’t necessarily indicative of market demand and could be inflated figures themselves.
By focussing on the rentals, you steer clear of incorrect figures and are able to more accurately determine how much a property is worth.
