As the real estate industry continues to evolve, and in an environment of fewer sales and downward pressure on commissions, survival in this industry might depend upon your ability to expand your service offerings.
A logical "next step" for those selling houses and condos, is to consider learning about adding multifamily to your offerings.
This is the 3rd Post in a series. Please post any questions here or contact me separately.
In the last post on value I said:
"Until you know value, everything is worthless."
There are a number of ways to value income producing real property. Always rememebr that the value of income producing property is directly related to the income the property produces.
Value by the Numbers
Gross Multipliers - Value=GSI X GM
This is just a "rule of thumb" and does not take into consideration the age of the property or the expenses.
Income Approach to Value (IRV) - Income (Net Operating Income) = Rate X Value
You can use this as a comparison without understanding capitalization rate. Cap rate is the "return on and the return of" investment. The lower the cap rate, the higher the value.
Changes in value based on changes in income.
Value by Tire Kicking
Cost per Unit
Unit Composition - How many 2 bedroom units in the property you are evaluating, how many 1 bedrooms, how many studios? Unit composition is a good point of comparision on similar type properties.
Parking - Older buildings (and even newer units, as we have seen in Boston) have less "off street" parking
Noise - Is the property close to a freeway, or school where the tenants may be disturbed by the noise? This affects the rentabilty of unts, which affects what you can charge for a unit, which affects the income, and remember: the value of income producing property is directly related to the income the property produces.
Type of Roof/Age of roof - a major expense when it needs to be replaced.
Individual Utility Meters
Size of Units
Seller Financing Assistance
Deferred Maintenance - Is there a lot of work to be done on the property?
Are there Individual Water Heaters?
Modern Kitchen?
Orientation of the buildings and the units in the buildng, Light or Dark makes a differnce in rentability (and vacancy)
What is the Price per Square Foot?
Put on your tenants hat
What about assemblage and plottage - can you acquire adjacent properties that will enhanse the overall value of the property you are considering?
Use the above points to compare one property against another - the comparison approach to value.
