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PROAPOD
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Why Market Value Might Not Be the Best Value
 James R Kobzeff 
Real estate investors often buy investment real estate based on the property's "market value" withcomplete satisfaction that they purchased the property at the best (or at least most comparable)value. But market value may not indicate the property's best value.In this article, we want to discuss this nuance of real estate investing and make some suggestionsworth considering the next time you contemplate the purchase of an income property.Market value does not necessarily equal "appraised value" or "sales price." Market value refers tothe selling price of a property only when that sale conforms to the criteria of a market valuetransaction, but, in this case, the credibility of which relies upon two crucial factors.1) 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 four-plex down the street that recently sold for $350,000, for instance, doesn't necessarilyindicate that a similar fourplex located nearby will sell for $350,000. The sale price depends on theterms of the sale and the detailed features of each property.2) The accuracy of your market value estimate directly relates to how well you describe the property's features. Unless you carefully identify the differences (positive or negative) that make adifference between properties, the market value you determine will not be very credible. For example, if you're comparing a ten-unit apartment complex with outdated kitchen cabinets to a ten-unit complex with newly installed kitchen cabinets and not adjusting for it in the value, your comparable sale data will be skewed.Bear in mind, to make profitable real estate investment decisions, investors must know features, properties, neighborhoods, construction costs, and lot values, and then base their investmentdecision on knowledge, sharp reasoning, and wise judgment.Moreover, you must realize that market value and past rates of appreciation do not forecast thefuture. Consider this paradox. Even if you buy investment real estate at a "bargain," you're notgoing to make money if the property is about to fall in value, whereas, you can make great returnseven if you pay full market value if the property (or location) is about to take off.Here's the bottom line.Real estate investors should never buy investment real estate without an accurate understanding of its market value. On the other hand, understand that market value itself does not tell you all that's
©2009 James R Kobzeff. All rights reserved.
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