Running the numbers on a rental

[Kyle Wenger]

Hello everyone, I found a property in my hometown that is a multi-family unit with garage rentals as well. This could potentially be my first investment property besides the one I currently live in. Although I browse the MLS, I never actually did the numbers for most of the ones I look at. What are the steps to finding out if this is a good deal, besides obviously looking at the property. I already love the location and all of the units and garages are currently occupied, so that in itself is appeasing, but I need to run the numbers. What are those steps?? Appreciate all your help in advance. thanks!

[David Faulkner]

How many units are we talking here? If it is 1-4, then that is residential property, and FMV is determined by sold comparable sales. If it is 5+, that is commercial property and FMV will be determined differently via calculating NOI and backing out value via the market CAP rate. If you can get the property for significantly below FMV (20-30%, say), factoring in the amount of money you put into it to bring it up to the standards of the other comps, then you likely have a good deal. That is not ALL you care about as an investment, of course, but if you at least get that right then if everything else goes haywire with the investment, then you could at least have a reasonable shot at selling it for a profit if you need or choose to. This will greatly hedge your risk. Deals like these do not normally fall from the heavens (or MLS as the case may be) ... it takes hard work and skill especially in today's market to find or create them.