Highest and Best Use of Property

Sometimes the way you intend to use a property can stand in the way of your investment goals, whether you realize it or not. Highest and best use - a term used by real estate professionals - refers to the concept that every piece of property has potential, and to maximize its potential is the goal of an astute investor.

For instance, you may have a cozy home in a mixed-use neighborhood, where both residential and commercial property exists side-by-side. And the personal sentimental or comfort-zone value may mean more to you than dollar value. But from the objective perspective of a strictly investment-centered real estate expert, your property may be more valuable in the landfill. The notion is shocking to some, but entirely reasonable to others. Let's say that next to your home sweet home is a busy consumer magnet - perhaps a clothing store, a bar and restaurant, or a grocery. If they need parking to help facilitate their business, your property may be worth twice as much to them as a parking lot than it is as a family dwelling. Similarly, a storage attic, art studio, or accounting office in an upstairs urban commercial district may have its best use as an upscale residential condo, and an investor might be willing to pay for the opportunity to convert it, and to capitalize on the new usage.

What does this mean to you, as an investor? If you own or plan to purchase property, have a certified appraiser do a special analysis in order to determine the highest and best use of your asset. You may be sitting on a gold mine, and not know it because it is presently used as something far less profitable.

Real Estate Investing