I recently got an email from a reader asking about valuation of a target property and thought this was a good time to recap what we have learned so far. Let me share with you an excerpt from that email…

From: xxxxxxxxxx@yahoo.com.ph
To: moderator@realestateinsight.ph
Sent: Tuesday, June 1, 2010 2:41:17 PM

Subject: Advice with Fort Condo

My husband and I are both working but we feel the money we save will never be enough to cover our retirement. We already have a house in Quezon City and are now looking at buying a ready to occupy condo at the fort. Our agent tells us that it is an excellent investment and is pushing us to close the deal. My question is how do we know if it really is a good buy? Is there a formula we can use? Any advice you can offer will be greatly appreciated.

At the risk of sounding like an advice column, which I don’t mind really, I’d like to respond to this email via this blog post…

I actually have several insights for xxxxxxxxxx@yahoo.com.ph. First, don’t ever let yourself get bullied (pushed) into a deal. Even if it sounds like a good one, it always pays to do the math first before jumping into something as important as real estate investment. That said, let me tell you about a post we did a few weeks back… This was about CapRate (Capitalization Rate). CapRate is a performance ratio that quickly tells you what the Value of a Target Property should be by comparing it with similar properties. Let us look at the example below and see how we can use CapRate to determine if the Value of a property being offered is at par or better than market…

Lets assume we are being offered a 1Br Unit in Serendra for Php 6 Million. We know that CapRates in Serendra (Fort Bonifacio) are at 8%. We also know that rents for 1Br units would give us a Net Operating Income of about Php 600,000 yearly.

So, to determine if Php 6 Million is a good price, let us follow the formula below…

Value = Net Operating Income / Capitalization Rate
Value = 600,000 / 8%
Value = Php 7.5 Million

From the calculation above, we can see that an NOI of 600K and 8% CapRate translates to a Market Value of Php 7.5 Million. This tells us that a purchase price of Php 6 Million is below market and offers a good 20% (Php 1.5 Million) discount.

You can use the same example above to see whether the property being offered is a good deal. Take note that the CapRate for Serendra may be different from the property being offered to you. Its best to ask your agent/ broker what the Property’s CapRate is. If your agent doesn’t know, look for another one. This is basic information that any good Realtor should know.

Buying a house/ property is both exciting and stressful. Selling your property is just plain stressful. Many people do not know where to even begin when they are buying or selling their home. This is why it is essential for home buyers and home sellers to find a great Realtor to help them through the process. Follow these ten tips to make the process of finding a Realtor less difficult.

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1. Find a Realtor that you trust. There are so many real estate agents so take the time to interview each agent before you decide to work with him or her.
2. Choose a Realtor that knows his or her facts. Most real estate agents have charisma, which makes it hard not to like him or her. When it comes down to it, choose a Realtor that provides you with honest facts, even if it is not what you want to hear.
3. A Realtor should know his or her way around the area. As a buyer you want to know that your agent can get you to each house on your list without getting lost. An agent that pulls over to look at a map does not instill confidence in a buyer.
4. The highest selling agent in the office may not be the best for you if you need extra attention. Choose an agent that has time to meet your specific needs and is not overwhelmed by other customers.
5. Choose a Realtor that works full time. There are some agents who work part time and buying or selling real estate requires the work of someone who can be there for you anytime.
6. Avoid pushy agents that push you to buy a house that you’re not sure of or that pushes you to list your home with him or her. Big decisions require time, avoid pushy agents. You wouldn’t believe the horror stories about pushy agents… I just recently worked with one who was actually pushing me to take a LOWER OFFER just so he could get the commission! Stay a thousand miles away!
7. Choose someone that is internet savvy and up to date on technology. A technological agent will have the world of real estate at his or her fingertips.
8. Choose an agent that has a strong network of professionals around him or her. This can be personal assistants or a great home inspector. If your Realtor recommends someone to you, it is likely that there is a good working relationship between the two professionals.
9. Find a Realtor who enjoys what he or she does and is happy and excited to work with you.
10. Word of mouth. Get a recommendation from someone that knows a great Realtor.

A good Realtor can make even a bad deal seem not so bad. Following these tips will help you to hand pick a Realtor that will help you with your real estate needs.