Chapter 10Overview of How to Value Real Estate

In order to succeed, your desire for success should be greater than your fear of failure.

—Bill Cosby

You may have heard horror stories about someone who lost a ton of money trying to flip a piece of real estate. Generally, it’s because the investor overpaid for the property because he underestimated the cost of repairs or miscalculated what the property would be worth once it was fixed up. Either way, this is never a predicament you want to experience and why the next few chapters are so important.

Correctly appraising the after-repair value of a property is one of the most important skill sets required of you as a wholesaler. Over the next few chapters, you will learn the time-tested process I have been using for years for determining the value of a property, as well as how to avoid the mistake of overpaying. You’ll also learn how to build a business process around this skill set to help you evaluate and appraise several properties at once.

There are three common approaches appraisers use when valuing a property: the cost approach, the income approach, and the sales comparison approach.

THE COST APPROACH

The cost approach is generally used for one-of-a-kind, special-use properties, and where market data is extremely scarce. The cost approach gives you a purely cost-based perspective on the market. The cost approach, simply, is an estimate of the replacement value of a property’s components—the land and the improvements on the ...

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