Looks like our long ‘no rental properties’ drought might finally be over. I am superstitious enough to not act like this is in the bag yet, but.
Our offer was accepted and we are under contract.
I figured I would lay this process out in a number of posts. I do not want to show a picture of the ‘real baby’ yet because things could still go south. But I would like to go over how I came to my current position.
If you have been following my saga with real estate, I have come close, but was always postponing or being scared off by something.
I liked this building way back in 2015. I watched it on realtor.com, I drove past it everyday. Me likey the metal roof and solid yet simple looking house.
The very day that I finished my rudimentary ‘running the numbers’ I made the call. Only to hear an offer had been accepted and it was off the market. BTW it had been on for over a year with no takers, I thought I was playing it cool. You know, the long game, trying not to act to needy.
Backfired Big Time. Bit ‘O Bad Luck. Not meant to be I guess.
Fast Forward 2 years, the guy is ready to give up. Doesn’t like the long drive to the property. Destiny Maybe?
I go back to the lab and run my numbers again. This place makes sense. I will call on it again. Wife has given me the prospective go ahead.
I will usually punch out the numbers like; sales price $115,000, down payment 25%. Mortgage at 5% for $86,250. Add in Property taxes at $ 215/month. Insurance policy at $ 73/month. I only pay trash. Rent Due $ 1325/month.
Here are the details on Metrics for Buying Real Estate;
Gross Rent Multiplier = Total price / Annual Rent
GRM = $120,000 / $ 14,310 (90%)
GRM = 8.39
So a number like 8.39 is great.
Lower is better. Big markets like NYC the GRM can be 15- 20 or more. We like that 8! Our number is on par with repressed markets like Detroit.
One Percent Rule = Monthly Gross Rent >= Total Purchase Price
OPR = $ 1,325 >= $120,000
OPR = yes
Total Purchase Price is higher b/c I have added in ‘closing costs’.
CapRate = Net Operating Income / Total Purchase Price
NOI = Gross rents – all expenses except for financing
CapRate = $ 10,902 / $120,000 = 9.0%
One More from the ‘Common Metrics’ formulas;
Net Income After Financing = NOI per month – Financing Costs per month
NIAF = $ 908 – $ 424 = $ 484 cash money every month!
Hurry, call the realtor Again!
Guess what, this time there are 2 offers on the property and it is again ‘off market’, Again.
A week later I am scanning real estate and funny thing is, the property is relisted.
Turns out the financing has fallen through on this property with 6 different buyers. What is wrong you ask? Tune in part 2; Zoning Madness which I will release as soon as I am sure I was able to actually master this dilemma.
What other Metrics do you run on a potential property?
Coach Carson also has a great post outlining all the different methods used to calculate the value of a potential rental property; HERE.