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The below topic is discussed in more detail
on our members' cost-value page .

Construction and/or rehabilitation of rental housing

In a free market , the cost of producing goods or services has little or nothing to do with its ultimate value. For example: a masterpiece, a rare stamp, a homerun by a super star, or a performance by a symphony orchestra. The analogy is particularly true in real estate where the three things that most affect value are location, location and location. When a builder targets a home buyer he must select a location which will add value to his cost of construction in order to make a profit. A 1,200 sq. foot home on a $30,000 lot will cost about $102,000. The finished product must have a value higher than that for the developer to stay in business. Fortunately people are willing to pay more for a home they like, in a desirable location, than it actually costs to produce.

Income property is different. When a commercial or investment property appraiser is asked to put a price on real estate, they must use three approaches to value in order to reach their conclusion. Replacement Cost, Market Data Approach and Income. The first two are considered factors, but the most important–by far–is how much income the property will produce. The annual Net Operating Income (gross rents - less, taxes, insurance, maintenance and vacancy) is divided by a capitalization rate (the cost of funds)

The above topic is discussed in more detail
on our members' cost-value page .

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