Although you may not think so from reading the newspaper or watching television, people are continuing to invest in real estate as part of their financial plan for the future.

Yes, we may not see the double-digit appreciation numbers of the past several years here in the Napa Valley, but the other benefits of owning real estate have hardly gone away.

The ability to borrow 80 percent of the value of an investment property will turn a modest 5 percent appreciation in value into a 25 percent return on your initial investment.

This is not to say that there are not cycles in real estate values, but history has shown that in longer term five to 10 years real estate has outperformed competitive investments.

Additionally, with a real estate investment that produces income, you will have the tenant's rent paying down the debt on your mortgage.

Even if there is little or no appreciation, the 15 or 20 year mortgage will provide you with a debt-free asset producing income for your future.

In addition to these incentives, real estate has the benefit of deducting depreciation and operating expenses from your taxable income.

The tax benefits from a real estate investment affect each taxpayer differently depending on their taxable income, current deductions and other financial commitments.

It is of extreme importance to meet with your certified public accountant before committing to an investment in real estate to discuss both benefits and liabilities.

From single-family homes to multi-unit apartments, ownership offers a tax-advantage investment with different levels of commitment to maintenance and management.

Rising prices have caused many investors to look to Solano County and other areas of Northern California for better rates of return.

However, for those with the income or cash to invest for the long term, both the cities and Napa County offer different types of investment property that has continued to appreciate because of land scarcity.

Options available include small multi-unit residential buildings, commercial buildings or Old Town office complexes.

The ability to determine value is important to an appraiser, but it is even more important to you when making an investment decision.

Without rapid rates of appreciation, it is important to buy right and add value.

The process is the same for both purposes and the fundamental concept used in income property is the determination of "highest and best use."

The "highest and best use" is defined as the reasonable and probable use that results in the highest present value of the land considering what is legally permissible, physically possible and financially feasible. You will want to explore each of these factors regardless of what improvements are currently on the property.

* Legally permissible -- by checking with local zoning and building codes you can determine the permitted uses, parking requirements, design limitations, utility issues and any other impacts on the development of the property.

Properties not used to their maximum zoning potential create opportunities for you to add value.

* Physically possible -- are there soil or slope constraints? What size or shape issues would limit the potential development? How would the access to the site impact potential or existing uses of the property? Setbacks, required parking and access to utilities are all important concerns in understanding property value.

* Financially feasible -- will the bank recognize the use as financially sound? Can an investor expect a reasonable profit at common rates of return? The fact that a site is legal and physically possible does not always mean that it will meet lender criteria to qualify for standard and easily obtainable conventional financing.

These requirements met, the three approaches to estimating value of investment property are the income capitalization approach, the cost approach and the sales comparison approach.

In making an investment decision, you will want to use all three approaches to determine value.

Depending on the type of property and amount of information available, one method will be more appropriate than the others.

Investment properties are often offered for sale on the basis of projected income and expenses.

As a buyer, your interest is in the actual operating statement as the property is managed today and making sure that the figures provided are accurate.

* Income capitalization approach -- This method is based on the theory that a property's value is derived from its present and expected cash flow.

The investor will want to earn a rate of return consistent with other investments of similar risk.

By taking the existing net operating income (income less expenses) and dividing that amount by an anticipated rate of return (the capitalization rate), an estimate of value can be determined.

The "cap rate" that you can expect in Napa will range from 4 to 6 percent depending on location, condition, age, type and other factors that impact property value.

* Cost approach -- Value by this method is determined by taking the land as if it were vacant, at its highest and best use, and adding to it the value of the existing improvements less depreciation for age and maintenance.

This replacement cost is a method based on the cost to build if a new structure were to be placed on the property.

It is important to have knowledge of construction costs, renovation costs or, if needed, demolition costs, to determine value.

This method is valuable where income information is less available or not applicable and construction costs are easily available.

* Sales comparison approach -- By taking similar properties that have recently sold, and making appropriate adjustment for differences, an estimate of current market value can be made.

This method assumes that there are a number of comparable sales available which are current and that sufficient information is available regarding those sales.

The number of units, square feet, size of the land, age, condition, utilities and location are just a few of the many items that will need to be adjusted to the subject property.

In evaluating property for your personal investment, it is important to look at the after tax return on the property.

The deduction of loan interest, operating expenses and depreciation can sharply raise the return for high tax rate investors.

Each person is different, so it is important to contact your CPA or other trusted tax advisor.

The appraiser, and you as an investor, can use all three methods or select the one that is appropriate for the type of property being evaluated.

For a single-family investment home, the sales comparison approach will be very useful, but not for a large office building where there are few like kind sales.

The income capitalization approach is very useful for an apartment house when the net income (after expenses) is of critical importance.

Because Napa is a relatively small area, you may use all three methods in estimating market value.

Put on your appraiser hat before you buy and, better yet, consider paying for a professional estimate of value from a certified and licensed appraiser.

We live in an area with a limited supply of land and desirable quality of rural living.

The prices of property are leveling off in order to adjust from the rapid gains of the past several years.

Real estate, as the Napa Valley itself, is here to stay as a longterm investment that will only go up over time.

Charles Bogue, a broker with Coldwell Banker Brokers of the Valley, 1775 Lincoln Ave., Napa CA 94558, can be reached at 258-5221 or e-mail: cbnapa@napanet.net.