Valuations based on actual vs projected rents

[Steve Miller]

I am reviewing properties for my first purchase. I’ve educated myself here (thank you BP!) for buying a 4 to 6 unit building. My questions are:

The property details list the current rental rates and generously forecast "projected rental rates".These forecasted rates are higher than the prevailing GRM and typically are much more than a 10% increase in the current rates. When you are evaluating a property to determine sales price and valuations, how do you reconcile the current rental rates vs a projected rate?  For the most part, I can see a fair 10% increase, that’s normal and in line with the market place. I’m also one who believes in a happy tenant is a long term tenant.

I would also like to occupy a unit in the building as my residence. Do you still factor in the “rent” of an owner occupied unit when calculating the value and other valuations?

Thank you

Steve

[Joel Owens]

Be conservative not the pro-forma junk brokers and sellers are pushing. If the deal still works it should be a go.

Appreciation and rent growth is icing on the cake. If both are needed to make the cake it could fall flat and you have nothing. When you buy purchase right and plan multiple exits. Begin with the end in mind.