Investment value is what a property is worth to you as an investor, which is often not in line with market value. It is the most you can pay and still achieve your investment goals. The typical buyer looking at market value has the usual motivation for buying a property as well as common financing which is based on market value. When looking to invest in property these factors likely do not represent your situation there for your investment value will most likely not be quite in line with a property’s market value.
Here are some example situations that may make your investment value of higher than what the market value is:
- You see great potential for improvements that are not apparent to the typical investor.
- The property is ideally suited to your business needs or is located near your business associates.
- The seller has an assumable loan of a large amount of cash is needed to close the deal. You have the necessary cash from sale of another property or previous investment.
- The property offers little tax benefit that you are operating for a nonprofit or charitable organization in which tax benefits do not apply.
If you investment value is higher than market value you will have quite a bit of bargaining room while negotiating for the investment property. This should provide you with ample opportunity to acquire this piece of investment property by outbidding buyers willing to pay market value.
On the flip side of this coin investment value to you may be lower than the market value in certain situations such as:
- The market may be expecting a lot of appreciation that you do not think will happen.
- You do not have a lot of cash and need additional seller financing to make a purchase of this investment property.
- There may be other factors such as the location which do not meet your desired needs and therefore make the property less valuable to you.
If your investment value happens to be lower than market value you probably will be in a situation to be outbid by most buyers however you should not pay more than the property is worth to you and would be better off in the end with no property at all rather than to pay a market value that you do not think the properties worth.
Hopefully now you have a better understanding of what a property’s investment value is and how it relates to the market value of the given property.
