Real Estate Location Valuation

Last updated 26.09.2021

When it comes to valuing a property, there are various aspects that need to be considered. One of the most important aspects is the valuation of the location.

This article is intended to show which questions need to be asked in the context of (site) valuation. We do not deal with the evaluation of substance, as this is usually done by experts (part of our service). In the first steps, a collection of facts is done, the evaluation of the facts is done holistically in a later step.

Key data on the property

The property location assessment is a complicated undertaking that requires some preliminary work.
Before we start with the actual analysis, we first have to look at the basic data of the property as part of the property location analysis. Strictly speaking, this has nothing to do with the location of the property in the classical sense, but is nevertheless of great importance for our analysis. 

We first ask ourselves: What type of property is it (house, terraced house, flat, etc.)? And what are the different components of the property?
These include, for example: terraces, balconies, their orientation, orientation of the windows in important living spaces, etc. Why is this important?

Example House:
With a house, the distinction between terraced house and detached house is important. A terraced house benefits from the energy of neighbouring houses, but is less exclusive. Both have advantages and disadvantages.

A detached house is more attractive to solvent tenants than a terraced house, as there is less need to consider the surrounding parties. 

How big a terrace is and how it is oriented plays a decisive role. A terrace facing south and away from other houses increases the rentability more than a north-facing terrace with a view of the street. The point about orientation can of course also be applied to the windows of the most important living spaces. A kitchen where you can enjoy the sun in the morning is better than a north-facing alcove kitchen.

Example flat:
Here there is less to analyse in advance. However, it must be clarified, for example, on which floor the flat is located. If it is higher up - is there a lift or do the residents have to reach everything via stairs? Are there common rooms, areas or a courtyard that invite people to stay? Is there a balcony that makes the property interesting and in which direction is it facing?

For both types of property (houses and flats), it is also advisable to look at the cut. This may sound absurd in the context of property location valuation - but it is not at all.

However, don't forget to look at this lens here if it is a capital investment. Because then it's not about whether you personally like it, but whether it meets the requirements for a certain tenant clientele.
Of course, there are other attributes to consider depending on the property, but they would go beyond the scope here. However, the basic idea should be clear.

Micro layer analysis

The next step in the location assessment of a property is to look at the immediate surroundings, i.e. the neighbourhood and the street. 

  • Population structure:
    Do young or old people, high earners or students, migrants or not live here?
  • Infrastructure
    Are there good public transport connections?
    Can you get around by bike or do you need a car?
    Are there shopping facilities for daily needs nearby?
    Even though one's own subjective view is often not a good assessment criterion, as an investor you can certainly ask yourself this question when analysing the location: Would I want to live here? Even better: Would my "dream tenants" want to live here?
    What kind of facilities from daycare centres to university(ies) are there? Everything that is close to the property increases its rentability. However, conclusions should only be drawn once the macro-location analysis has been completed.
  • Rental market
    What is the price per square metre for comparable properties? It is also important to find out if the demand for rental space is high or if you have to work harder to market the property. This is where tools like Geomap can help. With these tools you get insights into the rental and purchase market including rental price/purchase price development, average duration of offers, etc. The data is very expensive but can be used to find out if a property is in demand. The data is very expensive, but informative and an absolute must to be able to really assess the situation. We use these tools intensively for our clients.
    If you want to investigate on your own and without a lot of expense, you can do a search on Immoscout. How long advertisements remain online is more decisive here than the number of rental offers.

If there are too few references for comparable objects in the vicinity, an objective view of the location is hardly possible. At this point, it is advisable to either collect information locally (from fruit sellers around the corner, from hairdressers, from the city...) or to abandon the search for this location. 

Our clients buy perfectly analysed income properties developed by us. Over the years, we have made hundreds of property valuations and find those properties that will still be profitable in 10 and 20 years.

Macro layer analysis

Behind this keyword are criteria that relate to the region or city in which the property to be valued is located. 

  • What leisure activities are available:
    The demands of potential tenants in this area also depend on the family structure. A family with children naturally needs different offers than a young couple who are keen on sports. Or young singles who would like to enjoy the nightlife.
  • What about the economy?
    Which employers are there? Is there sufficient diversification or is there a risk of migration if one of the larger employers closes? Which industries do the companies at the location belong to? Are these industries promising? What is the general supply of jobs and what is the local unemployment rate?
  • Key data on the population:
    Immigration is a decisive factor; if there is more of an outflow, the question is why and whether a reversal is likely in the near future. Demographic reports are very useful here.
    What is the purchasing power of citizens? This can be used to find out whether upmarket or standard flats are more likely to be rented. And which demands the largest masses have in terms of furnishings.
  • Labour market/educational opportunities:
    In order to classify potential clientele groups, it is worth looking at the labour market and educational opportunities. These can give you a sense of what kind of tenants could potentially move in and also what budget they are likely to have.
  • Additional questions for small towns:
    What is the accessibility for commuters? Are there employers nearby that would justify the commute? This can be particularly exciting in Bavaria, for example, where the big cities are surrounded by wide belts.
    Once you have gathered all this data, you should by now be able to assess whether the property can be let well and whether the location is suitable for an investment. If so, it is necessary to use this data to weigh up what kind of prospective tenants are most likely to come into question in this location and for this property.

Client identification

Now, based on the data collected, it is necessary to weigh up to which tenant clientele one can rent the property. It helps to ask yourself questions like:

For whom is the cut suitable?
For whom is the location particularly interesting?
For whom is the current layout suitable?

Whether you have chosen the right clientele can then be checked again on the basis of the data collection.

In the best case a property is suitable for several groups, then one should ask oneself:
Would you rather rent long-term or as expensively as possible?
Is it worth remodelling the interior?

Once you have answered these questions, you can assume a rental price and use this to calculate (to the calculator) whether the property is attractive not only because of the location factors but also because of the expected rent.

Potential assessment

The last step in the location assessment of a property is to find out how this particular location will develop in the future. To find out, it is worth taking a look at the local newspapers: Are there any upcoming construction projects that could have a traffic-calming effect? What are the political plans for the area, are there likely to be sanctions that will make it difficult for companies to develop, or can we expect to see policies that promote certain value-added conversions? Sector perspective: How might businesses in the city or neighbourhood fare in the future? For example, is a digital start-up ecosystem emerging that could attract many young, well-educated people? Or do old industries prevail that are doomed to decline sooner or later?

Generally speaking, a property valuation cannot be carried out according to a specific template; the questions that need to be asked vary from property to property and city to city. This article is intended to give a sense of the directions in which to think and can be used as a guide. Answering these questions often takes less time than figuring out the right questions. 

You would like to invest in real estate, but do not have the time or resources to carry out a comprehensive property search and valuation? Our experts deal with this on a daily basis and are happy to assist you. 

A You can arrange a non-binding consultation here.

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