In this episode of Get Real Wealthy Season 2, Quentin talks about talk about appraisals, their importance, and the process involved.
Quentin starts by saying that appraisals are crucial because that is when you get paid or make money as a real estate investor. So, understanding how it works is important. He adds that the three different ways appraisals are figured out include comparative market analysis, the income approach, and the replacement value or cost approach.
Comparative market analysis is the most commonly used for residential properties between one and four units. It is based on the recent selling prices of similar properties in the same neighborhood. When you can do that with two or three other properties on the same street, that is a comparison between numerous properties in that particular market on that street.
The income approach is usually what you use for commercial and rental properties, from one to four units to apartment buildings. The value of a property is based on the income it generates. It’s calculated by taking the net operating income, and dividing it by the capitalization rate, the expected rate of return.
The third approach is slightly different and it is referred to as the replacement value or cost approach. It evaluates what it would cost to rebuild something. Oftentimes, you see this when you’re trying to finance that building that doesn’t exist yet.
Quentin shares that the members can access his course on EducationREI.ca which can help you get higher appraisals. He adds that the things that you can do to get a higher appraisal include preparing a package for the appraiser to share our own market analysis, two or three comps, a letter of what we’ve done to improve the property, and sharing a higher value of the property than we expect to get.
In conclusion, he says that the refinancing process is when you get paid. It can help you recapture funds that you can reinvest in other projects, and all of this is possible with good appraisals.
Important Links and Resources
Quentin D’Souza is the Chief Education Officer of the Durham Real Estate Investor Club. Author of The Action Taker's Real Estate Investing Planner, The Property Management Toolbox: A How-To Guide for Ontario Real Estate Investors and Landlords, The Filling Vacancies Toolbox: A Step-By-Step Guide for Ontario Real Estate Investors and Landlords for Renting Out Residential Real Estate, and The Ultimate Wealth Strategy: Your Complete Guide to Buying, Fixing, Refinancing, and Renting Real Estate.