Posted by Mark(OH) on March 15, 2002 at 09:04:57:
My “rule of thumb” is to look at similar properties (# of BR/BA) sale prices within the last 6 months - 1 year within a 0.25 - 0.5 mile radius from the subject property. However, if data is sparse, I’ll look at anything. I try and throw out (ignore) the highest and lowest value and then compute an average and a median price value for those comps. I tend to use the median value more than the average because the average is influence more by widely scattered data (e.g. a few high values tend to make the average creep up). The median value (the middle number when you rank order data from high to low) is a better indicator because that value is not influenced as much by data scatter.
as far as how long to hold… As long as you are making money! Why would someone get rid of an income producing property? Unless there is a significant, life changing event - divorce, retirement, tired landlord, need cash, etc. Some people I know like to hold for 5-7 years, sell, collect their backend profit and move on to another property. You could also caculate “what if’s” whereby you perform calculations under different scenarios (property always rented and generating X amount of dollars cash flow, property vacancy rate of 20%, etc.) and see how long you must hold the property to break even or generate a return on your investment of 10, 20, 30%. Its all up to you and your financial goals!
Hope this helps.