Four essential elements to consider when determining the value of real estate
- Scarcity: How scarce is the property, and how many similar properties are currently on the market for sale? Is it in Delhi, or is it Kolkatta? Is it beachfront, Princeville, or a less desirable neighborhood? When a property is scarce, investors are faced with conducting their own cost- benefit If a property is in high demand but low supply, it will likely be expensive.
- Transferability: Does the property have a marketable title that can be transferred? Are there liens on the property that won’t clear easily? Will the title company insure it, and can you get a loan on the property?
- Use (Utility): What is the highest and best use of the property? What is the land zoned for that would maximize and produce the greatest net return over a given period of time? One of the highest and best uses of a property is using it as a vacation rental. On the Island of Kauai, we have only 3 “Resort” neighborhoods in which vacation rentals are legally allowed without obtaining a Transient Vacation Rental license: Princeville, areas of Kapaa, and Poipu. Some properties on Kauai, outside of these designated areas, have “grandfathered” this entitlement, which adds significant value to the property.
- Demand: Who is the Buyer and why do they want it? How many people would want that property because of the other 3 factors? I always ask myself, “Who will be the Buyer when I want to sell it?” Some factors that have a tendency to affect demand are population, demographics, government, employment, and wage levels. On Kauai, tourism is the greatest factor in driving