Estimating the price of a building is as delicate as it is important. There are many reasons for having a property appraised, but the most common are acquisition and sale. In both cases, the valuation must be carried out with care in order to be able to define a fair price, which takes into account the particularities of the property but also the current market value. By estimating a property correctly, you have a better chance of closing a deal. In general, real estate generally loses value over the years, while land gains value. Estimating the price of a building is therefore not the same as estimating the price of land.
Whether you want to estimate the price of a flat or make an estimate of the worth of an investment building, you need to take several factors into account, starting with the price per m2 in the commune, then the property. The location, living area and number of rooms, the size of the plot and the year of construction will all be taken into account. In addition, any alterations that may have been carried out should be taken into account: a terrace, veranda, garden or swimming pool are highly appreciated added values that increase the building. Note that the view also counts. There are many online tools available to you, based on the hedonistic method often used by banks and insurance companies, the comparative market analysis which consists of comparing similar properties and, of course, the expert, preferably on site..
Among the many types of existing investments, investment property has the reputation of being a "safe" investment. It is low-risk and has long attracted a large number of investors in Switzerland. But what exactly is an investment property? An investment property, also known as an investment property, is a property that is acquired for the purpose of making a financial investment that generally serves to pay interest on the capital invested. It is a real estate investment that, when executed with care, allows you to make profits on a regular and sustainable basis. But to invest intelligently, it is better to master real estate expertise or, failing that, to surround yourself with someone whose job it is to appraise real estate.
Investing in a high yield property often holds out the promise of easy, passive income for budding investors. It can quickly lead to frustration when the buyer is ill-prepared. However, having the financial means is often not enough to make a successful investment. The first step, when one wants to start buying a property with a return, is undoubtedly to estimate a property to understand what the possible returns on investment are. The valuation of a property is often based on income, from which is deducted interest discounted at current value. Estimating the value of an investment property can therefore be carried out independently, using the tools available online or by an expert.
In order to acquire full ownership of a property and make a good deal, it is necessary to be able to define what types of property the buyer wishes to rent out. Several types of property are considered to be yield properties.
Among them are:
There are many calculations to be taken into account when estimating a building. Newcomers who are not very familiar with the real estate sector can use an online estimating tool. To obtain an expert opinion and successfully complete the investment project, it is best to call on the services of an expert who is already on site and who knows the ins and outs of the municipal or regional market inside out.
Before embarking on the acquisition of a building for profit, you should be aware of the various possible uses to which it can be put to generate profits. An online property appraisal can be useful. When it comes to investment properties, you have a wide range of choices.
An investment property can be considered private or commercial. An estimate of a rental property is simple to define the type of property you are looking for. To differentiate between these two types of property, the simple method of preponderance must be followed. Namely, a building where 50% of the space is used for business, commercial and rental purposes is considered a commercial building. For example, if a building consists mainly of shops and offices, but the top floor is intended for residential use, it will be considered a commercial building. From a tax point of view, the main use is decisive. Do not hesitate to contact a real estate professional for assistance.
In order to proceed with the valuation of an investment property, we rely on the services of a competent professional. The latter may use one of the following methods:
The yield value is a method obtained by capitalizing the actual or estimated income by the real estate expert. It is important to remember that it depends, in addition to the expected rental income, on the interest rate, but also on the expected profitability. It is, therefore, necessary to divide the annual gross rental income by the capitalisation rate obtained. The latter depends on the general condition of the property, its type and its geographical location.
For example, if the amount of rent received is CHF 150,000 per year with a capitalisation rate of 5.75%. The yield value of the property rises to CHF 2,600,000, i.e. CHF 150,000/5.75%.
The capitalisation of future flows method, also known as DCF for Discounted Cash Flow, is considered as a dynamic yield value for investment accounts. Using this method, an appraisal of the market value makes it possible to estimate the amount that a buyer wishes to have available at a given time T in anticipation of cash flows in the coming years. Widely used to appraise a property, the method is based on the return on the investment system. The sale is possible insofar as the investor can assume the cost of committed capital, debt as equity.
The intrinsic value is the actual current value of the property. To calculate the intrinsic value, the replacement value of the property must be taken and the obsolescence subtracted.
Intrinsic value = Replacement value - obsolescence + land
Finally, to calculate the price of a property, the expert can use the hedonic method. It allows the value to be estimated on the basis of the price of comparable properties. This method is very well known in the real estate sector in Switzerland and is often used to value a standard house or building. Indeed, to be effective, it is necessary to know the elements of comparison on the market. For luxury or atypical properties, the situation is more complicated. The real estate expert will know how to use these different tools in order to be able to transmit precise estimates to future buyers.
To estimate the value of a building, the results of some technical diagnostics must be taken into account to check that the building is in compliance with the legislation. These may be energy diagnoses, as well as diagnoses relating to materials that are harmful to health.
The financing capacity of a property takes into account possible works and renovations, the use of the property, its geographical location, the risk of vacancy and many other factors. It, therefore, depends above all on its specific features. However, as a general rule, 80% financing is possible. The buyer will then have to provide the remaining 20% in equity capital. The pension funds of the 2ᵉ and 3ᵉ pillars can only be used if the owner lives in one of his own homes. If necessary, a proportional allocation is possible. The calculation of the debt ratio for investment properties is not the same as for owner-occupied residential property. Here, the relevant element is not the income of the mortgagee but the net rental income.
All costs incurred are included in the calculation of the debt ratio: mortgage interest, depreciation costs and other ancillary costs. If the amount of costs incurred is subtracted from the annual net rental income, the surplus should be as attractive as possible. Let us take the example of a property with a fixed yield of CHF 1,500,000 and a mortgage of CHF 1,200,000, representing 80% of the purchase price. The net annual rental income is CHF 100,000, with an interest rate of 5%. The calculated interest costs amount to CHF 60,000 (5% of CHF 1,200,000), the 1% amortisation rate is CHF 12,000 and the ancillary costs of 15% of the net rental income are CHF 15,000.
If these costs are deducted from the annual rental income, an annual surplus of CHF 13,000 is achieved. In addition to this surplus, mortgage creditors also look at the gross yield of a property. A gross yield of around 7% is considered reasonable by Swiss standards. However, the rate of return can vary depending on a number of factors. For this reason, different valuation methods can cause the interest rate to vary. This is why it is important to surround yourself with a competent expert, and even, if possible, to compare several offers and check interest rates. This will make it easier for you to ask for an estimate.
Whether you proceed with online assistance through simulation tools or call on a real estate professional, you will need specific documents to assess the value of a building with a return. The more documents you provide, the more accurate the estimate will be. Some documents play a vital role in the valuation of a property, but others are difficult to obtain. The appraiser may have to rely on the following documents:
Certain documents can be obtained from the landlord, municipal offices or the land register. If a safety certificate for the low-voltage electrical installation is not available, it should be requested from an authorised installer. For the fire insurance policy for the building, application should be made to the insurer. A document listing the details of the rental income and the so-called WALT, Weighted Average Lease Term, which corresponds to the weighted average rent, may also be requested. These documents enable the expert to make a professional and fair estimate. Regardless of the method used, in general, obtaining a maximum number of documents will only be beneficial for all operations.
To carry out an appraisal of a property, you can choose between 2 options: you can use online appraisal tools or call in a real estate professional on the spot. The first method, known as the hedonistic method, is based on a database of completed sales and therefore allows you to make a comparison and target the market. Dozens of criteria come into play, both on the property itself (year, the surface area of the land, living area, condition, etc.) and on its location (location, presence of transport and shops around, etc.). Simple, quick, precise and inexpensive, it is a solution appreciated by banks and insurance companies. However, you will still need to find specific data to make your simulation.
Note that when the property is very specific, the estimate becomes difficult in view of the number of similar transactions available. If you are unable to get to grips with the specifics of real estate, you should consult an agent. The expert will make a visit and study the relevant documents and elements in order to be able to deliver a written evaluation. In Switzerland, the USPI expert is trained and authorised to deliver a professional appraisal. This is an additional guarantee that can be useful when applying for funding. The BOV (Broker Opinion of Value) is a much less expensive estimate than going through an agent. However, it is not sufficient for financing applications.
First of all, estimating the price of a building is not quite the same as estimating the price of a plot of land or a house. The valuation of a building requires even more detailed documentation, also in view of the diversity of building types in this sector. A building with only dwellings will be valued differently from a commercial building, for example. The valuation can be carried out by yourself, using online tools. Or entrust your project to specialists in the sector, who are familiar with the conditions, circumstances, advantages and constraints in the municipal or regional context. On the methodical side, there are several methods available to achieve a good result, a good estimate. Estimating the price of a building can be very important for the acquisition or sale of such a building.