Highest and best use or HBU is a factor in real estate appraisals that shows how the highest value for property is achieved.
The value must be based on its highest and best use that would produce the highest value for property regardless of its actual current use. This is factored with the probable and legal use of the property that is physically possible, financially feasible and appropriately supported that result in the highest value possible.
This is a key factor in real estate investments. Knowing how much the property can generate is a basis for lender approval and investment opportunities. There are multiple factors to consider including how the property has been used in the past, currently, and what it could do in the future. How many rooms are there and what are the zoning laws for the neighborhood? Does the property need renovation or a remodel before can be used for a variety of businesses or residencies?
Commercial and residential real estate varies on its highest and best use.
Residential of course focuses on how many bedrooms, square footage and lot usage. How many families can feasibly live in the property? What’s the highest rent that is capable for the neighborhood? Are bedrooms really bedrooms if they don’t have a closet? All of these are factors to determine the highest and best use of a property. Commercial on the other hand varies greatly with its highest and best use. Does the mortgage cover all of the rents that the property is capable of collecting? Can you maximize profits with a variety of retail or business tenets? What are the zoning laws and rules and how much insurance will you need to cover said commercial property?
Hoboken Realtor, Mike Kotler adds this: “Under utilizing a rental property can be costly not only now but in the future. Knowing how much rent is capable from a particular property takes the skill, consultation, and know-how of a real estate investment professional and appraiser. Knowing all you can about a particular property can help you make wise financial decisions in the future with how the property is to be used.”
Renting out a property may not always be the best option either.
Finding the best cash flow income may come from a variety of sources rather than simply renting it out. Can it be split up into multiple units? Is it smarter to rent out the entire building? Is sharing a commercial space the smartest way to go?
While none of these questions can be answered in a simple generic blog, they can’t be answered when you contact a real estate investment consultant the focuses on the highest and best use for your area and your neighborhood. Call a local Realtor today and discuss options, financial directions, and what you’re hoping to get out of your real estate investment.