Higher Intrinsic Value & Lower Market Value

Finding lower appraised values on their rental portfolios than what they believe their properties are worth can make today's housing market really frustrating for real estate investors.

Market value is the price that a property would sell for in a specific period, and it can differ hugely from the value which can be counted as the value of the property’s cash flow to an owner, also known as the property's intrinsic value.

Under a cash-flow scheme, the intrinsic value of a property might be much greater than the market value. The conditions in the real world, such as recessions and housing bubbles, can influence market value. Intrinsic value is the value of the property in a perfect world, in a stable market.

 

Be Diligant Researching Property Markets

An unstable market can offer great opportunities for real estate investors. But these same instabilities lead to time periods where market value and intrinsic value are different.

It can be extremely annoying for an investor when an appraiser determines the value of their property less than what the owner believes the property is worth. While an appraisal is a single person's opinion, it is based on a professional assessment of the home’s condition and other factor such as the selling price of other similar homes in the neighborhood.

Landlord Lenders has a mission to become a trusted partner to rental real estate investors. Our goal is to lend cash to our clients so that they can continue investing in their properties and enhance their real estate portfolios. So even when the market value comes out to be lower than what the borrower had expected, investors should consider many other variables when deciding whether to take a real estate loan:

1. Mortgage interest rates are at their lows and it is an affordable time to buy.

2. Opportunistic real estate doors may shut. The disconnection between intrinsic value and market value will reduce. An economy that is improving could indicate investors will face more competition for homes from owner-occupants if purchase originations increase as expected next year. Now may be a great time even if the loan amount desired isn’t as much as was expected.

3. Even if a lender is lending less money than hoped for, investors can still make use of that money in doing something rather than waiting and hoping for the market value to match the intrinsic value.

Some smart investors take advantage of the disconnection between market price and intrinsic value to enhance their portfolios while prices are and interest rates are still low. Now may be a great time to continue investing while enjoying the yield that comes from a still unknown intrinsic value on one’s current single-family rental portfolio.

When investors approach Landlord Lenders, they are sometimes disappointed because they believe their property is worth much more due to firm rental cash flow. And for savvy investors, they are not wrong. However, our services lend against the traditional market value. Landlord Lenders, like most other lenders, complies with the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, also referred to by its acronym FIRREA.

To learn more about our services, please contact us at 888-375-7476.