No Comps, Whats It Worth?
Hi, I'm fresh out of the box ,but I've found a few multi-unit properties for sale that the monthly income far exedes the monthly outgoing expenses of what I would owe,once ****Must Reach Freshman Investor status before posting URL's***y question is,Is there a formula or theory to determine the value of a multi-unit property,by the amount of rent monies that comes in each month?(25% vancancy ratio etc.)If rents go up does the value also go up? The area I live in has nothing to comp from I've asked believe me(Ottawa Il.)Please any thing would help!! 
there are some general rules that have been used in the past. I do not think they are too applicable in todays upward spirling of prices.
Multiple dwelling you look to buy unfurnished and the first rule was the rents should be about 10% of the purchase price.$100,000 price $10,000 income per annum. That was supposed to give you a 10% yield on your invested capital.
That was the point at which you started adding costs and subtracting a vacancy rate which was based on an examination of the last years income as only that record seems to have the information. Of course some buildings have a higher repair rate then others. Or the utility bills if furnished are higher. Away you go.
There has to be comps, maybe all you have are higher priced properties or way lower properties. You write an adjust ment figure. Compare costs of maintenance, cost of services supplied and from that you can get some idea of what things sell for. Of course the easy way is get to know a qualified Real Estate Broker and ask him and he will I hope show you.
That without getting super formulized is about it. Play with the figures. etc
Cheers Lucius
Thanks ****Must Reach Freshman Investor status before posting URL's***he property is selling for around 100,000 and the annual income is 16,000.This is way over 10% that's why I know this is a sound ****Must Reach Freshman Investor status before posting URL's*** was just wondering, is there a way to estimate the value of a property based on the monthly, or annual income of said property?If the rents are raised ,does this raise the value of the property ?Thanks
Having been in Ottawa, IL a few times I understand your dilemma on not finding much in the way of comps. Answer some of the following questions and it should give you a better idea:
1) how old is the building? brick or wood exterior?
2) age of mechanical parts--a/c, heat, water heater, etc...
3) 4-plex? 5-plex? 6-plex?
4) one bedroom, two bedroom, three, etc?
5) how many baths?
6) paved parking or gravel?
7) Overall condition?
<IMG SRC="images/forum/smilies/icon_cool.gif"> Tax value?
9) Vacancy rate?
Now go call a general contractor and ask him how much a similiar structure would cost today. Call up an insurance company and find out how much insurance you can get on it. Very rarely will they OVER insure a property. Their formulas are pretty accurate.
If you really want to know the value hire an appraiser for a couple hundred bucks and get a certified appraisal. From the numbers you gave (montly rent of $1350, and a yearly gross16,000) and dependent upon the condition a ballpark of figure of the mid 100's. If you can get this for $100,000 it sounds like a great deal. Hmmm maybe I'll have to make another visit to Ottawa <IMG SRC="images/forum/smilies/icon_biggrin.gif">
Good Luck,
PD
[ Edited by ProspectDaily on Date 03/03/2004 ]
Value....such an ambiguous term.
1. It's worth whatever you and the seller agree that it's worth.
2. Get it appraised.
3. NOI X 10 is a rough figure (but the good deals can be better than that).
If I could clarify what Lufos said. He said that income X 10 is the price. That is NET income, not gross income as you have assumed.
Thanks all who ****Must Reach Freshman Investor status before posting URL's***'m ****Must Reach Freshman Investor status before posting URL's*** thought there was a logical way to figure this ****Must Reach Freshman Investor status before posting URL's*** was looking for some kind of way to estimate the worth of a prospective ptoperty,when comps are hard to come ****Must Reach Freshman Investor status before posting URL's*** asked 2 local agents and they had ****Must Reach Freshman Investor status before posting URL's***hanks again.
I also use 5 x gross annual rent to get a rough idea before I really do my DD. 500 per mont = 6000 per year x 5 = 30,000 which is close to NOI x 10. Basically, I look for positive cashflow after 100% leverage, 15 yr max, after expenses.
Good Luck,
Shawn(OH)
O.K. thanks, but I must admit ,while I'm trying to figure that reply out can you explain what DD is .(5x rent should equal 10x annual noi ?)
Due Diligence
When I started in this business the old German guy I worked for had this rule.
any property any where any time is worth 10 times the true NOI
9 times is a good deal
8 times is a very good deal
at 7 times, you come get me.
those numbers basicly correspond to cap rates of 10, 11, 12 and 13%
Or a gross rent multiplyer starting at 5 in locations where expenses run about half of income. But the more you "round it off" the further you get from accurate results.
Mark