The true value of property

There are several ways that landlords use to measure the true value of a residential investment:

Open Market Value (OMV)
Investment yield

However, a more fundamental measurement that is often used by economists in valuing businesses is the replacement costs. This is a useful tool because it gives us perspective above and beyond market conditions.

The replacement cost is simply how much a property would cost to build including the imputed value of the land on which it sits.

Build costs can be calculated using the BCIS figures. Add in a value for the land and take off any 'refurb' costs and we arrive at what that building would cost to build new. If the OMV of the property is less than the replacement costs a landlord has to conclude that subject to the other metrics - they have a pretty sound investment.

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