REAL ESTATE MARKET VALUE
How do you determine real estate market value? Of course, it’s important to research a property before you buy it, but what about the neighborhood? Is the area improving or declining?
How do you evaluate the location? Let’s use New Albany as a case study as we show you what to look for when assessing real estate market value.
Watch the video above or read the summary below:
During my research, I came across a map of a particular area, the Lark Street Improvement area. This end of Lark Street is beautiful. As a matter of fact, it reminded me of Columbus Avenue or Soho in New York.
If any of you know Soho, or you’ve heard of it, then you know, it’s an area with nice buildings. I mean, the structures were nice. It was a rundown, impoverished area.
So what happened? Artists started moving in, and we all know that where artists go, lawyers are sure to follow.
In about five years, a transformation had started. The artists came in. They started putting in little shops and everything, and things started to be upgraded.
As one area becomes developed, it spreads to the next area, then to the next and the next.
Of course, Soho is world famous. Everybody wants to live there, $1,000,000 co-ops.
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REAL ESTATE MARKET VALUE – ASSESSING NEW ALBANY
I saw the same type of process starting here. Because again, here on this end were the shops, the coffee houses. On the other end were crack houses. And there was a continuum. You could see the development.
Even there, you could see everything is crowded around the lower area. There are the shops, the galleries, etc, and it thins out as you go towards the north end.
Of course, the houses that we were interested in on the auction were on the north end.
REAL ESTATE MARKET VALUE – THE LARK STREET AREA
Why did I choose the Lark Street area? It was an inner city area. I had made money in that type of area before, and I had a feel for it. I wasn’t afraid of it.
Follow the money, and the government was putting money into these areas because, as I’ll show you, this was only five minutes from The New Albany. This whole area was five minutes from the new area.
So did the government want to put all of that money into The New Albany when five minutes from there was a blighted area? No. Plus, the redevelopment had already started. It wasn’t like you had to wait 10 years for it to start.
Finally, if any area has a cartoon map on a website, you know that something’s happening there.
That’s the New Albany, and that’s literally five minutes from the area we’re talking about, Lark Street.
REAL ESTATE MARKET VALUE – ONLINE RESEARCH
So we determine an area. Now we’ve got to do research in the area, assess real estate market value.
Dataquick has all types of information on the property. That you have to pay for. There’s also RealInfo.
You try to determine what’s going on. What are the comparables? What are properties selling for? You can get the physical details of properties from these sources. Talk to neighbors. They’ll give you neighbors’ addresses.
REAL ESTATE MARKET VALUE – FARM REPORT
Any realtors here? You know what a farm report is. A farm report is a listing of the properties in a particular geography. They give you such things as the addresses. That’s the address.
The size is 2,696. That’s the square footage of the building. 5,455 square feet is the size of the lot itself. Three bedrooms, one bath. The last sale was 1/23/98 for $33,308.
You see how helpful this kind of information could be when you’re trying to determine what the value of the property is that you’re looking at?
REAL ESTATE MARKET VALUE – REALINFO PROFILE
This is a picture of one of the RealInfo profiles that we talked about. It’s got the physical condition of the property, schools and financial information.
What did it sell for? What did the last person who bought it pay for it? Who was that person? The names, the dates of the transaction, it’s a gold mine. This is all available at home. You haven’t even left home yet.
REAL ESTATE MARKET VALUE – DATAQUICK
This is interesting from Dataquick, nearby homeowners. We talked about the neighbors, right? So starting with the address you’re interested in, you can find the neighbors surrounding that area. Now what good would that do?
Would anybody here pick up the phone, get the number, call one of these people and say, “Hi, I’m thinking of moving into the area. I understand it’s a lovely area. How long have you lived there? You mind giving me some information?”
That information can be invaluable to determine real estate market value.
REAL ESTATE MARKET VALUE – ON THE GROUND RESEARCH
There is a limit to what you can do from home to assess real estate market value.
At some point, you have to get up and go, but by now you’ve pretty much narrowed down your objectives. You’re converting them from suspects to prospects.
REAL ESTATE MARKET VALUE – TALK TO LOCALS
When you get there, you’re going to talk to various people. Again, what is your goal? To find a property you can sell quickly at a great profit.
You’re going to have to learn, for instance, contractors. Why would you talk to contractors? Because they are the people, by and large, that will buy fixers.
You talk to them. You tell them you’re thinking of buying property in the area. They’ll give you a resume. They’ll tell you what’s going on. They’ll tell you what they bought and what they’re looking for.
Realtors can give you an idea of what’s happening. Who’s moving? What schools are where? What churches are there? Who are the current owners? These are good indicators of real estate market value in the area and where it’s going.
REAL ESTATE MARKET VALUE – A CASE STUDY
One thing I liked about Lark Street was when I walked down to that lower end, the owners there were the same type I saw on Columbus Avenue in Soho, the pioneers, the youngish people unafraid to go into areas that weren’t quite set.
They were the artists, etc. So that kind of interaction with the neighbors is very, very important, and of course, the shops and the galleries.
REAL ESTATE MARKET VALUE – LOCAL BUSINESSES
This is the lower end, where you saw all the shops and galleries. There’s a restaurant right there that serves great fish and chips. Wonderful.
You just walk in and say, “Hey, how’s business?”
If all the shop owners say, “Ah, business is dying,” that’s one indication.
If they say, “Oh, it’s great, and we’re opening up another place,” and you can actually see progress, well, there you go.
This is a picture of the other side of the street. For those who are not from the east, you may have heard a term, a brownstone or a townhouse. Well, that’s what these are.
REAL ESTATE MARKET VALUE – LOCAL RESIDENCES
These are townhouses, brownstones. They call them brownstones because originally, when they were built in the 1860s, 1870s, the facade, the finish, was sandstone, which was brown. So that’s how the term came about.
Typically, they were maybe 3,000 to 4,000 square feet, and one family lived in each of those structures. Usually the help would live upstairs, just like in Britain. You see a little window up at the very top.
This is a picture of the block all the way down at the other end.
Due to my skill and professionalism as a photographer, you hardly know the difference, right? Just kidding.
Actually, the property we were interested in was further down, covered by trees, but trees are good.
Here are some more properties down at that end of Lark Street.
This was 144 Lark. It was on the market for $75,000, and it needed tons of work.
This is another one, 104 Lark. It sold in 1998 for $75,000.
They were originally one-family dwellings. As the neighborhood changed over the years, they were chopped up.
The original families were quite wealthy. They were the big merchants of the time, like Abraham and Straus. You may have heard of A&S Department Stores. Abraham lived in one of these brownstones, not in Albany, but in Brooklyn.
We bought one nearby, but now they’ve been chopped up. So each floor is probably an apartment.
In Manhattan, they actually chopped them up further. They would chop each floor in half and rent out these little one bedrooms.
When I was young, I lived in one on the Upper West Side, near Columbus Avenue. We were paying $351 a month, and it was about 300 square feet. Now those same apartments are about $1,500.
We came down to three properties that we were very much interested in.
Here’s 115 Lark. When I say a three-story, three-family shell, you know it’s three story, three family. A shell simply means that, like a clam, if you take the meat out, there’s just a shell.
Everything inside needed to be redone. Just the building was there. That’s a shell.
As for 139 Lark, we were very excited about this one because it had a retail space, a store at the ground level and two apartments above. I’ve owned properties like that. The store will generally give you more rent than the apartments.
We figured somebody with a trade could move in, put the business downstairs and either live upstairs or rent out upstairs. So we thought that had tremendous potential.
The other building on Clinton was near Lark, but not on Lark. 115 Lark is one of the three I just told you about. It was in the auction, and the assessed value was $24,000.
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REAL ESTATE MARKET VALUE – ASSESSED VALUE
Now what does the assessed value mean? The assessed value is the value that the tax collectors put on the property. It may or may not have any bearing on the reality of what the current marketplace is.
Look at it as a way to compare different properties. One will have a higher assessed value; one will have a lower assessed value, but don’t think that it has anything to do with the current real estate market value.
REAL ESTATE MARKET VALUE – ASSESSED VALUE VS MARKET VALUE
I’ve seen assessed values very high, and the building is worth nothing.
You’re seeing the opposite, because usually counties don’t assess properties every year. They might assess them every five years, or haven’t assessed them in 30 years.
One of the things people are amazed at in New York is that right now those brownstones in Brooklyn are close to $1,000,000, but the taxes are about $1,700 simply because they haven’t reassessed in like 30 years.
REAL ESTATE MARKET VALUE – 2 EXAMPLES
Now 139 Lark has a store on the bottom. It was a restaurant at one time. It was a realtor’s office. It’s a fairly deep building that goes all the way back, and there’s a little extension.
Now, again, because of my skill and prowess as a photographer, who would know that the building was fire damaged? It’s gutted. You can stand there on the bottom floor, look up and you’ll see the sky. It was a total wreck .
The assessed value was $43,000. Does that tell you something?
This is 61 Clinton, and the assessed value was $21,000. That was a four-story, three-family. See there’s an additional space there. The thing we liked about it is that it was around the corner from a theater that’s being redeveloped.
So again, money was being poured in. On either side, there were brownstones that were already renovated. People were living in them.
REAL ESTATE MARKET VALUE – WHERE TO START
So you start with the area and type of the properties. You select what you feel comfortable with.
How do you select the properties that you’re going to bid on? By starting with the area. start with the type of property.
We recommend that you start off with single families or one to four family dwellings because they’re the easiest ones to move. That has the most demand.
REAL ESTATE MARKET VALUE – UNDEVELOPED LAND VS RESIDENTIAL LOTS
Stay away from undeveloped land, unless you’re Bob Schumacher.
Undeveloped land is not a lot in a subdivision. Undeveloped land is where there’s no street address. It’s just map coordinates, and all you see is trees. If you look close enough, you’ll probably see Bob in one of those trees.
As for the rest of us, we don’t want to go there.
REAL ESTATE MARKET VALUE – EXIT STRATEGY
You look at specific neighborhoods. You look at the properties, the values.
What are you looking for? You’re looking for who is going to buy this property? You talk to that type of person.
Is it a contractor? Is it going to need fixing up? You’re going to need a contractor, so get bids.
In most cases, unless the property is occupied, you will be able to go inside the property. If the property is occupied, you will not get the chance to go in because you can’t disturb them.
REAL ESTATE MARKET VALUE – YOU MAKE YOUR MONEY WHEN YOU BUY
We’re getting down to where the rubber meets the road. We have to come up with the maximum price we’ll pay.
The target is 300% profit? We found that the contractors. who are the potential buyers. would pay between $19,000 and $25,000 for a shell in this area at that time.
So what’s a third of that? $8,000. Zero improvement cost.
REAL ESTATE MARKET VALUE – WHOLESALING PROPERTY
Why is there zero improvement cost here? Because we’re going to wholesale.
We’re not going to fix it up. We’ve done long-distance renovations before, and they don’t work. I’ve got the arrows, the stripes back here to prove it. They don’t work.
So a maximum bid for that property was going to be $8,000.
We’ve got the properties that we want, and we figured out the maximum prices.
We hope you enjoyed this walkthrough of a neighborhood to determine the real estate market value of the properties in the area.
As people in the real estate biz are fond of saying, “Location, location, location,” because the location matters even more than the individual property’s attributes.
No matter how nice that property is, if it’s located in a declining area, you can expect the value of the property to decline along with it. So look for signs showing which direction the neighborhood is going.
A lot of your research on real estate market value can be done online, and this will certainly help you narrow things down. However, at some point, you need feet on the ground and eyes on the properties.
Do you take everything at its current face value? A lot of people do. But which direction is the neighborhood trending? Could that rundown area actually be the next Soho? There will be plenty of signs indicating the neighborhood’s direction.
Don’t be shy about talking to the locals. Talk to neighbors, shop owners, contractors, and realtors, people who know the area well. They can give you priceless feedback to help you determine the true real estate market value.
Amazing deals can be found in a neighborhood that’s on the upswing, especially if you purchase those properties at a tax sale, where you can get deep discount real estate for pennies on the dollar.
At a tax defaulted property auction, where the bidding begins around the amount of the back property taxes owed, you can get bargain real estate for 10, 20, or 30 cents on the dollar, and get it without a mortgage.
At a tax lien auction, you don’t immediately get the property. However, a tax lien certificate pays outrageous interest, up to 36%, and it’s secured by real estate. So if you don’t get paid, you get the property, also without a mortgage.
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