Overview
Real Estate Analysis is the analysis of a piece of real estate as a financial asset. It is primarily concerned with determining a fair value for the asset. It is often used when evaluating loans or structured securities that are backed by real estate. (see Mortgages for example)
Valuation Methodologies
- Market Analysis: formulates a price based on an analysis of the market where the property exists. This will include the prices of other properties in the area as well economic factors and trends. Considered to be a form of relative valution
- Cost Approach: estimates the price as being the cost to construct a similar property in the same neighborhood on the theory that the market would not pay a higher amount for a property if it can just construct a new property. To be accurate, this method requires that space is available in the neighborhood or must include the premium paid for obtaining the location.
- Income Approach: utilizes the standard discounted cash flow analysis tools to analyze the value of the income stream that the property could generate.