Here’s an example of some Property analysis Guidelines, make sure you’re comfortable with the Guidelines YOU use! Mike
Cap Rate = Net Operating Income/Purchase Price (Value)
Gross Rental Income (month)
- -Real Estate tax
- -Condo/HOA fee
NOI/month x 12 _____________NOI Annually
NOI/Purchase Price (Value) = Cap
3.Rate of Return
Net Income/Investment = RoR
4.Income Approach GRM
Monthly Rent/Value = GRM
285 Lynn Shore Drive Apartment #512, 01902 3 Rooms, 1 Bedroom, 1 F Bath 602 SF (April 17, 2020)
(7%, 30yr Fixed, 20% down = $984.12/month PI)
$184,900. List price/602. SF = $307/SF
There were 26 Sold Listings within 0.50 mile radius & within the past 6 months. $190-392k Average 903SF Average Sale $246,354.
2. Capitalization Rate
Cap rate = Net Income/Value
$2500. monthly rent
-$453. Condo/HOA fee
-$169.62 RE Tax
-$250. Vacancy & Maintenance
$1627.38 NOI/month x 12 = $19,528.56 NOI/year
$19,528.56/$184,900. = .106, 10.6 Cap
(Lower the Cap, Lower the risk, Higher the Cap, Higher the risk)
3. Rate of Return RoR
RoR = Net Income/Investment
$19,528.56/$36,980.00 (20% of $184,900. down payment) = 52.8% Rate of Return.
4. Income Approach – GRM
$2500/month/$184,900. purchase = 0.014 1.4 Gross Rent Multiplier. 1% is good in our area!
5. I like the Debt Service Ratio for quick numbers. It allows me to make Counter offers on the Spot! which is VERY Importante’!
$2500. rent/$984.12 PI +$435.Condo fee + $169.62 RE tax = 1.56 Quickly shows a bank you can make payments every month, collecting that rent!
This is also the Guide we use in Lesson #5 “Make an Offer” of Mike Hurney’s course “How to Become a Real Estate Investor in 12 Simple Lessons”
Last – don’t forget our “4 Corners of the Box” Mortgage Guidelines
Reserves – 3 months PITI
High FICO credit score
Low LTV Loan to Value
Good DTI Debt to Income ratio
Get out there looking and make your own Good Luck! Mike