'Investment Value' is explained in detail and with examples in the Real Estate edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Investment Value refers to an asset’s specific value given a particular range of investment parameters. It can be defined as the property value to a given group of investors (or an individual investor) who have specific investment goals in mind. This makes it a subjective measurement of the asset or property’s value.
Many times potential investors will employ the investment value metric when they have an interest in buying a certain real estate property with a particular group of investment goals and objectives. It might be they have a targeted return rate they are looking for in the investment. This is why such a value metric heavily involves motivations and beliefs in a particular investment strategy.
The reason that this investment value would have importance on a transaction concerns buyers contemplating buying a given asset when they want to compare the pricing of the real estate or asset in question to the anticipated rate of return. When they are able to use this value to consider their specific rate of return, they are able to measure up the investment final results with the projected price they will pay out for the property. This helps them to make an intelligent purchasing decision consistent with their investment objectives.
In contrast to the investment value, market value is the true value of the property (or asset) in question based on the supply and demand of the open market. It is typically determined by utilizing the appraisal process where Real Estate is concerned. This contrasts with the individual investors’ value they may place on the property as it pertains to their unique goals, objectives, and needs for the property they are considering.
It is important to realize that investment value is not the same as market value in many cases. The investment values might be lower, higher, or the same to the market values. This would heavily depend on the property’s specific scenario at the time. In fact the market values and investing values are typically approximately the same. Yet they can diverge.
For example, investment value might be greater than that of the market value. A certain buyer may place a higher value on the property than would a typical informed purchaser. This could happen in the real world when a firm decides to expand its premises into a larger newer building that has just gone on sale across the road from the current company offices. The company might be willing to pay a higher price than the market value so that it could ensure competitors stay out of the market and do not secure the building before they can conclude the transaction. In such a scenario, this extra value becomes derived from the strategic advantage that the firm will realize by having the property.
Where a single investor is concerned, it is also possible for investment value to exceed the market value. An example of this could be when the investors have a special tax status or situation that can not be transferred. They might also have some type of highly advantageous financing terms that do not apply to rival investors or buyers.
It is similarly possible for investment value to be under that of the market value on a property. This could happen when the given property is not a kind in which the investors normally specialize or concentrate their efforts. As an example, for multifamily developers, choosing to consider developing a hotel could cause the investment value for this particular situation to be lower than the traditional market value for the given site. This would be because of the greater costs involved in learning to develop the property. It might also be that the investors are seeking out and demand a higher than average return from a property thanks to their current portfolio diversification and allocation.