Valuing a.... Tenanted House

[adrianr]

Following on the 'Price is Right' theme, does anyone have any insights into valuing a house which has a long term secure tenant?

Property in question is occupied under an ancient agricultural 'three generation' agreement, which essentially means the tenant (who is the last generation, in their early 60s and in good health) will be in residence for the rest of their life, so we're talking long term investments here.

AdrianR

[Billsnemesis]

Ultimately value will always be whatever anyone will pay for it but there are some basic principles.

Someone in their sixties is likely to live about another 20 years so work out what the value in 20 years is in net present value terms.

Take into account any obligations as landlord (repair, insurance etc) against any income (rent).

Both calculations have to take inflation into account.

The combination of these elements will give you an appropriate starting point for valuation.

The maths can get a bit complex and a lot of the predictions will come down to educated guesswork but any commercial property agent should be able to do it for you.

[adrianr]

Thanks, I hadn't thought of using a NPV calc - had a bit of play with Excel last night which was interesting. There are three big indeterminates in the calc - inflation, house price index and lifespan so will do some guesstimates and add a risk premium.

I guess the pros have actuaries tables for these things?

Adrian