What is the real value of a residential investment property?

Valuation strategies that profitable property investors use

As I discussed in a previous article, one of the two laws of successful property investment is that you must buy at below market value. Do this and you lock in a profit, as well having a buffer against an unexpected and temporary fall in value. The question is, how do you know what is the real value of a residential property investment?

Property valuation is now an art, not a science

Many people do not understand what a property valuation or survey is, so let me explain my general working definition of  value of a residential investment property that applies to all property markets. I’ll start with the concept of a comparable valuation, which applies to all types of valuations in residential property whether new build or second-hand.

What is a comparable property valuation?

This is perhaps the most valuable value of a residential investment property available to the investor. It applies to all properties, whether new or existing. When you instruct a qualified surveyor to provide a valuation on a property, they will generally inspect your property then compare it to other properties. They compare based on properties in the same area of:

  • Comparable specification
  • Comparable age
  • Comparable style
  • Comparable rooms
  • Comparable living
  • Comparable dining areas
  • Comparable kitchens
  • Comparable outside space
  • Comparable build

Hopefully, you get the picture: the surveyor compares the property against those that are most like it. However, they also go further than this, because the value comparisons are made with properties that have been sold in the area within the last 90 days.

The surveyor also assumes the following conditions were present in the sale:

  • Sold via an arms-length transaction – this means that the seller and the buyer did not know each other and that normally a real estate agent will have facilitated the transaction.
  • Sold with a normal marketing programme – this generally means that an estate agent advertised it on their website, their shop front, open houses, flyers, and all the normal marketing methods you would expect.
  • Sold under normal market conditions – which would mean that it wasn’t sold via an auction or a ‘fire sale’. Normal market conditions mean the property would usually sell with all the above conditions within 90 days of coming onto the market.

The valuation report will normally provide the details of at least three comparable properties. These can be of a higher or lower value, and be different style properties, too. If this is the case, the report will usually explain why they have been used as a basis for valuation, and how the property being valued fits in.

Comparable valuations are the lifeblood of the industry, but property valuations are not an exact science. The challenge that every property investor faces is knowing the real and correct value at any given time. Sometimes, we can use the inexactness of property valuations in our favour; other times, it backfires on us.

You must find the correct valuation

This is something that you must not underestimate.

You must make sure that you are profiting when you purchase a property. So, you must be certain that you have a true value of a residential investment property, and that you aren’t buying at a false and inflated price that will generate an instant loss.

Inflated valuations are a part of property life. Everyone tries to pump up the price. Just because a property has an asking price of x thousand pounds does NOT mean that it is worth that amount. It could be worth x minus y thousand – or it could be worth x plus y thousand because it is undervalued.

How do you ensure that you have the correct valuation?

There is plenty of research you can do online. You can also visit the area, talk to property professionals on the ground, and look at the comparable properties to discover what prices they are fetching.

First and foremost, however, you must have a written value of a residential investment property from a surveyor registered with a local professional body such as RICS (Royal Institute of Chartered Surveyors). It’s their professional obligation to get it right.

Building on these first steps to a true valuation, you’ll also want to conduct your own due diligence. You should also learn to avoid inflated valuations:

  • Recognise sales hype and exuberant asking prices
  • Do your own research and compare against other properties in the area
  • Talk to local agents and get their opinions

To learn where you can buy properties below market value, in highly sought-after locations, get in touch with Gladfish on +44 0207 923 6100. We want you to be successful in property investment and enjoy the cash flow and profits that we’ve helped hundreds achieve to date.

Live with passion

Brett Alegre-Wood

Brett Alegre-Wood
February 14, 2018


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