Formula?
is there a general formula of rental income to justify a certain property value? for a 3 unit worth $124,000, is there a general rule to use? if it matters, this property has a 3 BR that rents for $650(Sec 8 app), a 1 BR for $340 and an unrented garage that should bring in another $100. financing I can handle one of 3 ways - pay all cash, mortgage for $83,200 at 5.99% for 15 years & $40,800 from a HELOC at prime less 3/4; or the whole thing from the HELOC. t
It really depends on your area, what expenses you have to pay, etc., generally speaking, a 3-plex should sell for a lower income multiplier versus a duplex or single family house. This is based on the additional risk of having 3 units instead of 2 or 1.
What i've done in my local market is analyze sales. See what others are paying for properties. If everybody else is willing to pay an 10 or 11 income multiplier, i'd look for an 8 or 9 on a similar property.
Also, the neighborhood, age of the property, condition, features, local vacancy, etc all go into what kind of multiplier you would pay.
It really depends on what kind of return you want also. If it doesn't seem the return is that great on a property you are looking at, it most likely isn't that good of a return!
As a source for what people are willing to pay, i'd find a good mutli-family realtor or other investors in the area. Being friends with an appraiser always helps too.
If you just need a quick number to see if the deal is worth it, find the Apartment finder books and get the rate of the nearest apartment, for the same square footage or close to it. But when it comes time to actually advertise your rental rates, definitely look at your multipliers, expenses etc. In Florida it is a 10 multiplier(AKA Take off some zeroes) as a general rule of thumb. If it has amenities such as a pool, you can usually get 10% more. Also if you allow large dogs you can usually get 10% more as well.
Good Luck,
Kyle
When I first started in this business the old german guy I worked for had a simple formula. It ran like this,
"Any building anywhere any time is worth 10 times its annual net operating income. 9 times is a good deal. 8 times is a very good deal.
At 7 times you should come find me.."
I've been in the biz a lot of years since then, in some good markets and some bad. Its still a formula that works. From time to time you will not find any properties that can be bought on this simple formula. That is the time to sit on your hands or sell.
thank you all so much. I had a relaxing few days away and am now ready to go to work. meeting with the realtor at 4 today to look at several properties I picked out
again, thanks for your experience & wisdom