Valuing a property to buy or sell.

General Discussion

Would appreciate other landlords/landladies perspective on the topic of the value of a property looking purely at the rental return or potential rental return. I have lived (until recently) in Coventry where the success of the University has led to a huge uplift in property values close to the University. Traditional terrace houses close to the Uni where being snapped up and converted into student lets as the Uni expanded and the demand for student accommodation rocketed. In what were areas of a mix of student/family occupancies I would say in a matter of 5 years the balance went heavily too student accommodation. A friend of mine had his 2 bedroom terraced bought within a week of putting it on the market and remarkably the buyer ripped the whole intenral walls out and converted what was a two bedroom terrace into a three floor property with 5 ensuite lets ! These houses had high ceilings and by lowering the ceilings they manage to get an extra floor an 2 ensuites in using the loft conversion. I would not have beleived it possible. And this was a terraced where the front door opened into the lounge !
Thats a bit off topic but seeing this can be acheived then the rental return will be huge on what was a £120 k terraced house. Ok the costs of converting were probably were probably in the 50k-60k region as they also extended the ground floor to get a large kitchen. The consequence of these conversions were that the property prices in the area went up probably 50% over 4 years. I sold one I owned and managed to acheive 25k more than the estate agents valuation - they were obviously out of touch!
So what is the best way to value a property ? Are you swayed by average prices of similar properties in the area or do you do the arithmetic and look at what you may acheive from rental returns ? You see the adverts of returns of 12% on some inner city flats - is the real or just hype ? I would say I sit comfortably with a net return of 6%. Add to that the increase in value of the property over a reasonable period of time and you could be looking at 10% per annum.