How do you value a house?
Discussion
I have worked out how to value a business, but I need a hand with this one.
My father inherited a semi-detached house with sitting tenants, and has asked me how much he should ask for it to sell it. He doesn't want to be a landlord any more (he inherited it from his father, but is getting on and can't be bothered with it any more).
He has some property managers wanting to buy it, but no idea if they'll offer a fair price. Without going either to auction, or getting a number of different companies involved, how do you value it?
The tenants are getting on a bit, but have some children, which, as I understand it, affects the price the house is worth. They are also on a tenancy agreement which basically means they pay only 2/3 of what the going rate should be.
I thought maybe ten years gross rent plus 25-30% of the current market value as fair, can any of the PH massive give me any guidelines?
The only offer he's had so far is "between 30 and 75% of the market value" which is no help at all.
Thanks any help you can be.
Companies tend to be valued at around ten times a years nett profit before tax, plus stock and cash-in-the bank, from what I can surmise.
My father inherited a semi-detached house with sitting tenants, and has asked me how much he should ask for it to sell it. He doesn't want to be a landlord any more (he inherited it from his father, but is getting on and can't be bothered with it any more).
He has some property managers wanting to buy it, but no idea if they'll offer a fair price. Without going either to auction, or getting a number of different companies involved, how do you value it?
The tenants are getting on a bit, but have some children, which, as I understand it, affects the price the house is worth. They are also on a tenancy agreement which basically means they pay only 2/3 of what the going rate should be.
I thought maybe ten years gross rent plus 25-30% of the current market value as fair, can any of the PH massive give me any guidelines?
The only offer he's had so far is "between 30 and 75% of the market value" which is no help at all.
Thanks any help you can be.
Companies tend to be valued at around ten times a years nett profit before tax, plus stock and cash-in-the bank, from what I can surmise.
singlecoil said:
But what if no nearby houses have sitting tenants with children and a tenancy agreement?
The value of the house is the value of the house though is it not? The question of rental income is a different matter. Both are matters which an Estate Agent can value though...Then how long is left on the tenancy will have a bearing on how easy it will be to sell the place, of course it can still be sold as an investment property with sitting tenants - plenty of them on rightmove etc..
The value will be dependant on the tenancy that is in place, if its a tenancy for life as it where then this will to some extent depend on the tenant that is in place.
This is basically a question of valuing the 'Investment Value' that is to say the value of the investment created by the rental income plus a capital sum which is would generally be based on the present value minus the expected deferred period. In order to do it properly you'd need to obtain yourself something called 'Parry's Tables' which would give you the formula for the deferred value, or at least provide a much better indication of the whole transaction before we could advise.
This is basically a question of valuing the 'Investment Value' that is to say the value of the investment created by the rental income plus a capital sum which is would generally be based on the present value minus the expected deferred period. In order to do it properly you'd need to obtain yourself something called 'Parry's Tables' which would give you the formula for the deferred value, or at least provide a much better indication of the whole transaction before we could advise.
The rough rule of thumb I have come across is to subtract the tenants age from 100. This figure is then the percentage of the normal market value.
As with all approximations it won't always hold true, but does seem to be fairly accurate.
In a rising market for instance buyers will be more willing to take a punt and gamble on capital appreciation more than in an unsettled market.
As with all approximations it won't always hold true, but does seem to be fairly accurate.
In a rising market for instance buyers will be more willing to take a punt and gamble on capital appreciation more than in an unsettled market.
Is it an AST or Statutory tenant.
For statutory the best you will probably get is 16x the rent, based on the rent giving you a 6% return.
How does that stack up against the market value for a similar house.
It might be worth posting where the house is, and what rent is.
For statutory the best you will probably get is 16x the rent, based on the rent giving you a 6% return.
How does that stack up against the market value for a similar house.
It might be worth posting where the house is, and what rent is.
Edited by 98elise on Monday 4th April 12:32
Need to establish first why they are sitting tenants. If it is an AST where you can get them out within 6 months then it will not affect value at all. If they have a genuine sitting tenancy then you need to try and establish yourself whether they will go with a cash or alternative incentive. This is the first thing a purchaser will want to know so you may as well get it out of the way.
Is the rent they are paying market value?
Is the rent they are paying market value?
We had this issue with a house my mum inherited. It was a hefty reduction. I would recommend getting a "proper" valuation, and then also one that would be if the house was empty.
I'm not sure what the legality of the following is, so do it through a solicitor. I'd be inclined to offer the sitting tenants half of the difference between the two valuations if they'll offer their notice on a "without prejudice" basis. That amount of cash may well move them. But as I said, I have no real knowledge of the law surrounding renting, so this may be very illegal.
I'm not sure what the legality of the following is, so do it through a solicitor. I'd be inclined to offer the sitting tenants half of the difference between the two valuations if they'll offer their notice on a "without prejudice" basis. That amount of cash may well move them. But as I said, I have no real knowledge of the law surrounding renting, so this may be very illegal.
davepoth said:
I'm not sure what the legality of the following is, so do it through a solicitor. I'd be inclined to offer the sitting tenants half of the difference between the two valuations if they'll offer their notice on a "without prejudice" basis. That amount of cash may well move them. But as I said, I have no real knowledge of the law surrounding renting, so this may be very illegal.
Perfectly legal, happens regularlyInvest a few hundred quid and get a proper vaulation done by someone who isn't a local agent. The RICS can put you on to someone in your area.
That will take into account the tenants, rent and various options. You are selling an investment property and the reversionary position is what many will be chasing.
Do that and you'll know. Otherwise it's guessing.
That will take into account the tenants, rent and various options. You are selling an investment property and the reversionary position is what many will be chasing.
Do that and you'll know. Otherwise it's guessing.
silverthorn2151 said:
Invest a few hundred quid and get a proper vaulation done by someone who isn't a local agent. The RICS can put you on to someone in your area.
That will take into account the tenants, rent and various options. You are selling an investment property and the reversionary position is what many will be chasing.
Do that and you'll know. Otherwise it's guessing.
+1 This is the best adviceThat will take into account the tenants, rent and various options. You are selling an investment property and the reversionary position is what many will be chasing.
Do that and you'll know. Otherwise it's guessing.
silverthorn2151 said:
Invest a few hundred quid and get a proper vaulation done by someone who isn't a local agent. The RICS can put you on to someone in your area.
That will take into account the tenants, rent and various options. You are selling an investment property and the reversionary position is what many will be chasing.
Do that and you'll know. Otherwise it's guessing.
Ok. thanks for that. I've got my friendly money man coming round in a couple of weeks so I'm a bit better informed as to what to ask for, now.That will take into account the tenants, rent and various options. You are selling an investment property and the reversionary position is what many will be chasing.
Do that and you'll know. Otherwise it's guessing.
Thanks for all the help.
maggit
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