I'm confused!!! - Posted by NB(ID)

Posted by Chris on February 05, 2000 at 11:23:09:


In addition to checking the acceptable GRM in your area you may also want to compute the price per heated square foot of comparable properties and multiply that by your target property total heated square feet to arrive at a purchase price. You need to know how much it will cost to take care of the repairs needed and subtract that from the offer.

You may also want to figure income after vacancies and expenses (excluding debt service) are subtracted to figure how much you have to pay mortgages on the property. Knowing how much you have to pay debt service after finding out the equity and existing liens in the property will give you more information to provide an offer.

You want to look at this from various angles to see if it is workable in addition to a GRM.

What are the sellers willing to do to assist with financing?

-Hope this helps, Chris

I’m confused!!! - Posted by NB(ID)

Posted by NB(ID) on February 05, 2000 at 09:54:24:

Thanks to those who answered my question about gross rent multiplier. However, I’m now very confused. Here are the stats on a property I’m looking at:

Great location
Top apartment rents for $295 a month
Bottom apartment rents for $280 a month
Small house rents for $250 a month.
Sq. feet on top & bottom apts. 800 each. Small house sq. ft. = 512.
Lot size = 100 x 168
Built in 1953, aluminum siding, metal roof (both look good)
WSG paid by owner. Electric heat is paided by tenants.
Taxes are $1,109.20 per year.
Asking price is $59,900.
Using the GRM, it would appear this property comes in at 6.1, the very edge of being an ok property to buy. However, assuming the owners will come down a little more and IF the agent is correct when she says rentals are always in demand in this small town, it would appear this would be a good investment property.
I looked at this property yesterday. It needs a few cosmetic fixes, new windows throughout, but other than that it’s a very charming setting.
Right now, the property is fully rented. Owners have moved out of state and have had this property on the market since May of 1999. They’ve come down from asking $70,000. What do you think?

Re: Do your Homework and Trust your Gut Feelings - Posted by Millie I.

Posted by Millie I. on February 05, 2000 at 22:33:39:


  1. The rents seems a little low. How many bedrooms are there in each unit? One bedrooms are usually harder to raise the rents, and tenants tend to be more transient. If they are 2 bedrooms, check the rents in the area, and see if you can upgrade the units to bring in more rents. Sometimes a little cosmetic touch like new paint job, mini-blinds and ceiling fans can do wonders. Sometimes changing tenants may be the only way to change rents significantly.

  2. You have a 2-unit and a small house. Are they on the same lot? or do they have different street numbers? You may be paying insurance and taxes for 2 properties $$$, so check you figures before you buy. The taxes you reported seems high for one property with such low rents.

  3. Ask the realtor why it didn’t sell? is there something wrong with the houses? neighborhood? any shooting or gang-banging in the area ? Find out why before you make an offer. Don’t get stuck with a lemon.

  4. If the property hasn’t sold for 10 months, the seller is not going to be too picky, take a chance and bargain a little, offer $50K and do a little Tango, maybe you’ll end up paying $55K (or less). After all, you are an investor, you are here to make a living, you have to guarantee a profit despite possible unknown findings after you bought the property.

Go for it, but do your homework first, and follow your gut feelings, not wishful thinking.

Best of Luck,
Millie I.

Re: I’m confused!!! - Posted by Jim Rayner

Posted by Jim Rayner on February 05, 2000 at 18:41:13:

I just ran your numbers and i think that i understand your confusion. As a general rule 1-4 units do not typically analyze well using Cap rate. I have found that more often than not that this is true in my market. This deal however does cap out well but the GRM is on the upper limit. When i analyze a property i look at both factors but i would never make my buying decision just on the GRM since it tells me little other than whether or not the asking price is even close to where it might be an investment quality deal oppurtunity. I think you have found a potentially good deal that you should certainly take a harder look at.

Re: I’m confused!!! - Posted by Chris

Posted by Chris on February 05, 2000 at 11:55:41:


I forgot to mention that if you do decide to go forward with this purchase to make sure that you are covered with inspections. You should always look at a property closely, but the fact that this is 47 years old makes that a priority.

Try to find out why they are selling and why they have not sold it after being on the market for 10 months.

-Good Luck, Chris