Value per gross rent
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Value per gross rent (by Hoosier [IN]) Oct 6, 2022 4:25 PM
       Value per gross rent (by Bonanza [NC]) Oct 6, 2022 7:16 PM
       Value per gross rent (by plenty [MO]) Oct 6, 2022 7:57 PM
       Value per gross rent (by Hoosier [IN]) Oct 6, 2022 9:18 PM
       Value per gross rent (by Hoosier [IN]) Oct 6, 2022 9:20 PM
       Value per gross rent (by 6x6 [TN]) Oct 6, 2022 9:57 PM
       Value per gross rent (by 6x6 [TN]) Oct 6, 2022 10:02 PM
       Value per gross rent (by Hoosier [IN]) Oct 6, 2022 10:25 PM
       Value per gross rent (by plenty [MO]) Oct 6, 2022 10:44 PM
       Value per gross rent (by Hoosier [IN]) Oct 7, 2022 12:29 AM
       Value per gross rent (by Bonanza [NC]) Oct 7, 2022 7:10 AM
       Value per gross rent (by plenty [MO]) Oct 7, 2022 8:15 AM
       Value per gross rent (by Hoosier [IN]) Oct 7, 2022 10:35 AM
       Value per gross rent (by S i d [MO]) Oct 7, 2022 10:40 AM
       Value per gross rent (by tryan [MA]) Oct 7, 2022 4:11 PM
       Value per gross rent (by Bonanza [NC]) Oct 7, 2022 4:13 PM
       Value per gross rent (by Bonanza [NC]) Oct 7, 2022 4:13 PM
       Value per gross rent (by Hoosier [IN]) Oct 7, 2022 4:22 PM
       Value per gross rent (by 6x6 [TN]) Oct 7, 2022 7:58 PM
       Value per gross rent (by plenty [MO]) Oct 8, 2022 9:53 AM
       Value per gross rent (by Phil [OR]) Oct 11, 2022 12:15 AM

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Value per gross rent (by Hoosier [IN]) Posted on: Oct 6, 2022 4:25 PM
Message:

Bonanza asked for this. I'll remove animal fees to make things apples to apples, but keep in mind that we had animals with probably 70% of our tenants, and usually two! We had a limit of two per house. All of these were SFH, and "normal" homes at that...no condos or in-law suites or other oddball things. I'm happy to post some photos of each house, but I don't know how you'll tell which house is which...any suggestions?

House #1 - Sold for $122k, was renting for $790/mo. That's 12.9x gross rent. This one we sold "as is", could have got a lot more by fixing it up. 2 BR 1 BA, built late '40s, dated interior, detached garage, crawlspace, about 950 sqft.

House #2 - Sold for $166k, was renting for $850/mo. That's 16.3x gross rent. This one I spent a lot of time fixing up and was beautiful when sold. Built early '60s, 2 BR 1100 sqft, full unfinished basement, 1 bath (but double sink lol), detached garage, masonry exterior, very nice home. Was just about to raise rent to $910 when they moved out and we sold it.

House #3 - Sold for $135k, was renting for $1,080/mo. That's 10.4x gross rent. This was our largest house, but the interior was VERY dated and it needed a lot of sprucing up. We sold this "as is" and my guess is that the new buyer had to put at least $6-8k into it just to get it livable. 3 BR, 2 BA, 1230 sqft, half unfinished bsmt, large carport.

House #4 - Sold for $167,500, was renting for 1,040/mo. That's 13.4x gross rent. This was the house that I told my wife "If I had to pick one of our rentals to live in, it would be this one." It was built in the early '60s, but had been flooded about 15 years ago, and after that was substantially updated with nice things like ceramic tile floors, fiberglass tub/shower with sliding doors, pedestal sink, ceiling fans in every room, dovetail drawered cabinets with muntins, solid surface counters, it had an attached garage, modern windows, new vinyl siding, and so on...it was a very nice house. It was a 3 BR, 1 BA, about 1,020 sqft, on a slab.

House #5 is yet to be sold...still occupied by tenants. However, it's renting for $1,240/mo, and will probably sell around $150k. That's 10.1x gross rent. I'm sure I'll have to do a lot of cosmetic work, as the tenants have been there a long time. This one is a very interesting story that I'll write up in a later thread. It's 3 BR, 1 BA, but tiny rooms...only 930 sqft., with a carport. It has been substantially updated inside.

Note that when we started, I wanted a portfolio of houses that spread across different needs, which is why we have some 2 BR, some 3 BR, some larger, some smaller, some with garages, some without. I wanted to be able to say to a prospect "Oh I'm sorry that house was too small for your needs, but we have a much larger one that may open up soon...give me your info."

As a side note, we named our houses based on the streets they were on. So we had the Central house, the Keller house, the Streamside house, etc. But then we bought a second house on Central, so we had a dilemma. One was near the Kroger grocery store, so we called it the Kroger house. This was amusing when I bought items at Lowes and gave them the PO number of "Kroger"...as they all assumed I was working on remodeling the Kroger grocery store.

LOL

--99.92.xxx.xxx




Value per gross rent (by Bonanza [NC]) Posted on: Oct 6, 2022 7:16 PM
Message:

Thanks! I find your stats interesting. --65.188.xxx.xxx




Value per gross rent (by plenty [MO]) Posted on: Oct 6, 2022 7:57 PM
Message:

What does the percent mean to you? Is there a percentage to aim for when you sell? Example house #1 12.9% what does that mean to you? --172.56.xx.xx




Value per gross rent (by Hoosier [IN]) Posted on: Oct 6, 2022 9:18 PM
Message:

Means nothing to me, just did it because Bonanza asked. But I understand why he asked. Would you rather pay $120k for a house and get $900/mo, or pay $100k for a house and get $900/month?

But for me what is relevant is how much TOTAL I have in a house to get $x in rent….including purchase price, initial repair costs, etc…and then you have to integrate also ongoing costs like taxes and insurance….

What’s better…

getting $900/mo on a house you paid $100k for where operating costs like peop taxes and insurance are $2,000/year?

getting $900/mo on a house you paid $110k for where operating costs like peop taxes and insurance are $1,000/year? --99.92.xxx.xxx




Value per gross rent (by Hoosier [IN]) Posted on: Oct 6, 2022 9:20 PM
Message:

The Real way to do this is to do an NPV analysis, where you lay out all expected cash flows and discount them back to today using a target discount rate….beyond the scope of this forum --99.92.xxx.xxx




Value per gross rent (by 6x6 [TN]) Posted on: Oct 6, 2022 9:57 PM
Message:

What is NPV analysis? --73.113.xxx.xxx




Value per gross rent (by 6x6 [TN]) Posted on: Oct 6, 2022 10:02 PM
Message:

I googled and found this:

"What Is Net Present Value (NPV)?

Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project. NPV is the result of calculations used to find the current value of a future stream of payments."

I will need to research this in the future. It is very confusing at the moment. --73.113.xxx.xxx




Value per gross rent (by Hoosier [IN]) Posted on: Oct 6, 2022 10:25 PM
Message:

Took several courses in college on it, and it was a large part of my job as a corporate finance exec. For example, if our company was looking to buy another company, I’d spend a few months mapping out all the cash flows to determine what price we should offer. --99.92.xxx.xxx




Value per gross rent (by plenty [MO]) Posted on: Oct 6, 2022 10:44 PM
Message:

That's the theory of it. What's the practical usages for this as it relates to the house sale? --172.56.xx.xxx




Value per gross rent (by Hoosier [IN]) Posted on: Oct 7, 2022 12:29 AM
Message:

Nothing lol...I don't know how many more times I have to say it...I ONLY DID THIS BECAUSE BONANZA ASKED. --99.92.xxx.xxx




Value per gross rent (by Bonanza [NC]) Posted on: Oct 7, 2022 7:10 AM
Message:

I'll tell you why I asked. Most investment property the price is linked to a CAP rate. (NOI/total purchase price)

CAP rate is fairly specific calculation but it can be manipulated by owners and brokers to show a better number.

Maybe some expenses are left out. Maybe there is some fudging going on. What I would include in a NOI might not be what is used in the calculation. did they leave out vacancies? Did they leave out management fees? I've seen some very "optimistic" CAP rates by maximizing NOI

Just using the asking price and gross rent gives you a CAP rate of sorts just without the jiggery and it's quick.

It's not anything taught anywhere, it means nothing. Just interesting to me.

Lets say in your market you know the average CAP rate is 5-7% and you know your expenses average 50% (NOI), they you are looking for a number in the 10-14% range when you divide gross rent buy purchase price (all other things being equal which they never are).

Now Hoosier's houses are single family which throws another twist in the mix since they aren't strictly "investment" property, but this is what I normally invest in - SFH. The SFH market has priced me out so I am looking at multi units.

I am seeing in my local area, duplexes and quads listed at 12-14x gross. These are old buildings, some with no HVAC system, built in the 40s. My thinking is they are over valued for what they are, but what the heck do I know?

It sounds like Hoosier accepted the properties he bought as they were. I have a hard time with that. I want to install an HVAC system, as I don't like window units. As many wise LLs remind me - don't over improve the property.

Anyway, just me rambling and pondering and thinking about real estate trying to make a buck or two.

--65.188.xxx.xxx




Value per gross rent (by plenty [MO]) Posted on: Oct 7, 2022 8:15 AM
Message:

Thanks. Inquiring minds just gotta ask questions! Rent On! --172.56.xx.xxx




Value per gross rent (by Hoosier [IN]) Posted on: Oct 7, 2022 10:35 AM
Message:

I’m not sure what you mean by accepted the properties as is, I bought them as is but I made improvements after purchasing them. For example I mentioned rewiring the entire house with a grounded electrical system and breaker panel instead of fuses. --99.92.xxx.xxx




Value per gross rent (by S i d [MO]) Posted on: Oct 7, 2022 10:40 AM
Message:

Dude, these are the kinds of conversations I love to geek out on. Hoosier, grteat break down of all your houses. Sounds like you got some good pricing on those sales!

For 6 by 6...

A short-hand definition of Net Present Value: how much should I pay today based on future net income?

What's that mean?

Real estate and/or business investments are often comparing apples to pomegranates. Should I buy the old factory over there and convert it to condos and rent them out, or should I guy the barn with 5 acres, spruce it up, and make it an event venue for weddings, graduations, birthday parties, etc.

How do you even compare two such totally different things?

You have to forecast future income and then "Back into" what the value of that future income is to you.

To do this, you take into account purchase price, rehab/fixer-upper costs, holding costs, etc. Adjust for the cost of money (i.e. interest, inflation) as best you can since no one can predict long-term inflation.

That gives you the net PRESENT value of the asset. What is it worth today, "as is" based on what it will earn me in the future.

Houses typically aren't valued with CAP rates or NPV, though you can do that as an alternate method of valuing. The main reason is houses can be owner occupied, so there are other factors that affect value besides NOI (Net operating income).

Commercial property is where CAP rate is important. Again, this is just a high level metric sort of like the 1% Rule to give ways to compare two or more possible purchases using cash returns after expenses and without considering if debt will be used or not, since that's doesn't really matter from a strict performance point of view. The building will produce the same income net of all expenses whether it is leveraged or debt free. Debt service is a separate line item that affects cash flow.

So let's say you have $1 million to spend and you find a property for that price which will give you $80,000 annual net operating income. That would be an 8% CAP rate regardless of what type of property it is. Now you can back figure the value based on owning it for 10 years...assuming level income for simplicity sake. That would be $800,000 of future income over the course of your ownership. Would you spend $1 million today to get $800,000 over 10 years and then get your $1 million back after selling...again, keeping values level for simplicity sake. If not, then you need to figure out what amount you WOULD spend to get $800,000 income over 10 years... that's the Net Present Value to you.

The key is, each investor will have their own metric for the discount rate. Some demand $X. Others demand 110% of $X. The investors chooses what is their acceptable discount rate.

And now, the formal definition:

"The NPV of an investment refers to the initial investment an investor makes in a property, minus the sum of all future cash flows discounted at the investors chosen discount rate."

--184.4.xx.xx




Value per gross rent (by tryan [MA]) Posted on: Oct 7, 2022 4:11 PM
Message:

I'll play along ...

Last one in the hood sold for 260k ... gross rents 17k/yr. So 15.3 x annual gross rents.

Never bothered with those kinds of calculations. BUT I knew the buyer was NUTS paying that much because he had a negative cash in excess of 400/mo.

A broker friend of mine would tell deals he and his brother where buying. Large complexes... they had over 100 units. I would say "but Paul you know the market is high compared to previous norms" He would say "who cares, it cashflows". --206.84.xx.xxx




Value per gross rent (by Bonanza [NC]) Posted on: Oct 7, 2022 4:13 PM
Message:

Sorry Hoosier I didn't mean to imply that you didn't improve the properties. I got the impression you improved them the correct amount versus my tendency to over improve things. --65.188.xxx.xxx




Value per gross rent (by Bonanza [NC]) Posted on: Oct 7, 2022 4:13 PM
Message:

Sorry Hoosier I didn't mean to imply that you didn't improve the properties. I got the impression you improved them the correct amount versus my tendency to over improve things. --65.188.xxx.xxx




Value per gross rent (by Hoosier [IN]) Posted on: Oct 7, 2022 4:22 PM
Message:

NP Bonanza, thanks for clarifying. --99.92.xxx.xxx




Value per gross rent (by 6x6 [TN]) Posted on: Oct 7, 2022 7:58 PM
Message:

Thank you, Hoosier and Sid, you are a wealth of knowledge. --73.113.xxx.xxx




Value per gross rent (by plenty [MO]) Posted on: Oct 8, 2022 9:53 AM
Message:

I like these discussions also. If you are ever traveling thru the historical town of StCharles Missouri, lunch is in me! --172.56.xx.xx




Value per gross rent (by Phil [OR]) Posted on: Oct 11, 2022 12:15 AM
Message:

On the house you sold for 135K

if they put 10% down, had property taxes of $2400/yr, $600 insurance- financed it at 5.1% for 30 years

The PITI = $909.68

Your rent was $1080

Are you going to get at least 5% on the money you net from selling?

And this was the lowest return on the sale --76.138.xxx.xxx



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