Posted by JoeKaiser on January 19, 2001 at 24:28:26:
Vince,
I haven’t been to the bank for a loan in over twenty years. We’re talking seller financing more often than not.
Joe
Valuation of Properties - Posted by Steve (OH)
Posted by Steve (OH) on January 16, 2001 at 05:57:43:
OK, I am trying to put together another tool to help in evaluating properties. I have used several including the “70” multiplier (gross monthly rents times 70 = the purchase price for it to be a good deal); have also used the 5.5 rule (gross ANNUAL rents times 5.5 = purchase price for good deal…this is more conservative).
I have come up with my own:
Take the potential price per unit (if it is a multi family) and add the annual taxes per unit. Take this number and divide it by the gross annual income per unit to get a figure of approx 1-10 (hopefully)…the lower the number the better. Here is an example:
If I am looking at a 4 unit priced at 120,000 and I think I can get it for 105,000. Taxes are 1,200/yr. Rents are 500/unit. I take the price per unit, 26,250 (105,000/4), and add the taxes per unit, 300, (1,200/4 units). Now I have a figure of 26,550. Next I take the gross annual rents of 6,000 (500 times 12). 26,550/6,000 equals 4.425. The lower the number the better so this appears to be a great deal. If I compare this to the other methods…70 multiplier: price needs to be around 140,000 to be a good deal. Other method: 5.5 times annual rents of 24,000, and I come up with a “needed” purchase price of 132,000.
What does everyone think? I call it the “Crownline” principle (that is the name of our company)!
I swear I have a life outside of this stuff…I swear!
Steve
Throw away the formuli! - Posted by JoeKaiser
Posted by JoeKaiser on January 16, 2001 at 18:10:18:
It’s an art, not a science. I know there are “numbers” people who need to do these sorts of calculations, but doing them rarely makes sense.
The value of an income property is based on the income it produces, period (all things being equal).
Take the income, subtract the expenses and now you have your net. Structure the debt service so that the net is more than sufficient to cover it, and you’ve got a deal. Does it really matter what “the value” is? I suppose it does if you intent to sell it in the near future. More often than not, with a property you intend to hold, price is no where near as important as terms. That’s how you buy.
What’s it actually worth?
It’s worth whatever someone will pay you for it, and you won’t find that in a formula.
You determine value by marketing the property, and when someone sends you an offer that’s acceptable, you’ve pretty much figured out what it’s worth.
Joe
Joe, I’ve got a question for ya - Posted by Vince
Posted by Vince on January 16, 2001 at 23:19:44:
Hi Joe,
You said in your post:
“Take the income, subtract the expenses and now you have your net. Structure the debt service so that the net is more than sufficient to cover it, and you’ve got a deal.”
Where do you find lenders willing to “deal” based on what the property produces? Are there lenders who will look at that instead of value?
I have a property deal working right now that I need to get funded. The building isn’t the taj mahal and some lenders see it and run. It doesn’t seem to matter that the price is only $35k and the yearly net rents are $12k!
I need to find a lender who understands this kind of “value.” Any ideas? Any lenders you would suggest?
Thanks in advance,
Vince