Assistance with Sanity check

6 Replies

Hi all, hope i'm in the right place and asking is a suitable question. But i'm looking to put an offer out on my first property and it seems to look good on paper. (I haven't seen the property itself yet, (hopefully tomorrow) other than pics (they look good)). I'm just looking for a sanity check on my rational.

Asking price: 495,000
4 units + 1 non conforming
Rents + laundry: around 5300
Taxes around 3000

I'm taking into account
mortgage
insurance
water
vacancy of 1 month a year
5% maintenance.
I've been throwing in 10K in repair costs (very rough guess)

In the end i'm getting a market cap of about 13% and cash on cash of 60% The numbers seem really good. Am i missing anything? Anything you would add?

Originally posted by @Shawn Cummins :

In the end i'm getting a market cap of about 13% and cash on cash of 60% The numbers seem really good. Am i missing anything? Anything you would add?

 Shawn,  market cap rates come from sales that have closed.  It will be next to impossible to get a cap rate comp for the type of building you are looking at.

With rents around 5300 you'd have $63,600 annually. If you pay $495,000 then you are buying at a 7.8 gross rent multiplier. If the typical GRM is only 6 then you are overpaying by over $100,000.

Originally posted by @Bob Bowling:
Originally posted by @Shawn Cummins:

In the end i'm getting a market cap of about 13% and cash on cash of 60% The numbers seem really good. Am i missing anything? Anything you would add?

 Shawn,  market cap rates come from sales that have closed.  It will be next to impossible to get a cap rate comp for the type of building you are looking at.

With rents around 5300 you'd have $63,600 annually. If you pay $495,000 then you are buying at a 7.8 gross rent multiplier. If the typical GRM is only 6 then you are overpaying by over $100,000.

Thanks a lot Bob for giving me insight into the GRM. Any idea of where i could find the typical GRM at the neighborhood level?

Originally posted by @Shawn Cummins :
Originally posted by @Bob Bowling:
Originally posted by @Shawn Cummins:

In the end i'm getting a market cap of about 13% and cash on cash of 60% The numbers seem really good. Am i missing anything? Anything you would add?

 Shawn,  market cap rates come from sales that have closed.  It will be next to impossible to get a cap rate comp for the type of building you are looking at.

With rents around 5300 you'd have $63,600 annually. If you pay $495,000 then you are buying at a 7.8 gross rent multiplier. If the typical GRM is only 6 then you are overpaying by over $100,000.

Thanks a lot Bob for giving me insight into the GRM. Any idea of where i could find the typical GRM at the neighborhood level?

 AAOG

Originally posted by @Bob Bowling:
 AAOG

 You're sure quick on the draw! Ill take a look, thanks!

Originally posted by @Shawn Cummins :
Originally posted by @Bob Bowling:
 AAOG

 You're sure quick on the draw! Ill take a look, thanks!

@Shawn Cummins venting a little and having a little fun with you, Ask An Old Guy/Gal AAOG. The great thing about GRM's is that all you need is sales price and estimated rents. If you're working an area you should be able to drive through a NBHD and make a pretty good estimation of rents. Sales info is generally public or can be obtained from a Realtor or website. 6-7-8-9-10 times rent and now they are trading at 15 so maybe the market is overpriced or maybe knowing market players are anticipating strong rent growth.

So is 15 good...or bad? You have to be familiar with your market to make that decision. Familiar with GRM today and historical GRM.

Originally posted by @Bob Bowling:
 @Shawn Cummins  venting a little and having a little fun with you,  Ask An Old Guy/Gal AAOG.  The great thing about GRM's is that all you need is sales price and estimated rents. If you're working an area you should be able to drive through a NBHD and make a pretty good estimation of rents.  Sales info is generally public or can be obtained from a Realtor or website.  6-7-8-9-10 times rent and now they are trading at 15 so maybe the market is overpriced or maybe knowing market players are anticipating strong rent growth.  

So is 15 good...or bad? You have to be familiar with your market to make that decision. Familiar with GRM today and historical GRM.

 Ha, yeah, your joke was completely lost on me. The research your describing makes good sense. Ill be pouring over everything today. And your right, prices, at least here in Chicago, are blowing up. We just had a new park called the 606 that replaces some old rail lines for several miles with a really nice running/walking/biking path. Now they are accessing the taxes on the surrounding properties (ouch!). With all of these crazy prices, it makes me want to get into flipping...

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