All Forum Posts by: Amir B.

Hi Amir, in your profile I see that you have a friend that is in real estate, is he assisting you in your quest? 

That duplex has been listed 5 days. If you think that 348k is too high then make an offer on a price you want to get it at.  There is a good chance that the seller will turn down the offer so then you dont have to analyze it anymore because you know the seller is not flexible yet. There are other factors to make it a deal like asking if they will do seller financing at a good rate and terms. See if your agent will ask more seller questions. 

 I agree with Bob. For smaller residential properties (2-4 units and singles), their valuation is normally based on comparable sales analysis not income method analysis.

You can still analyze it based on the income method analysis but if you expect 8-12% cap for residential...specially in high priced, highly appreciating areas, then income method analysis will result in you missing out on a lot of deals.

There are third party companies that do this for a fee. But basically a cap rate is only used when you are trying to value a NOI that consists of above and below market long term leases. The best way to get a value for a residential property is by direct sales comparison.

Cap rate = Net Operating Income (NOI) /Property Price

The NOI = Income - Expenses

Up at the top click on tools and there is a rental calculator you can use to determine if a property is a good investment which also gives you a cap rate. 

Aside from those figures you'd also want to find out who currently pays utilities and factor in if you'll be paying for property management. 

You're missing some pieces to the equation: 

Cap rate= Net operating income / Purchase price

So for your example

Cap Rate= NOI / 348,800 (This is IF you bought it at list price)

One step further 

Industry standard says that NOI is typically 50% of Gross income on the property (this will vary by property). For your example this means $22,200 X .5 = $11,100. Using this assumption we get...

Cap Rate= $11,100 / $348,800

Cap Rate= 3.2

Market cap rates are simply the returns investors are willing to take within that market for comparable assets. 

With all that being said you would not value a duplex using cap rate. You would would value a duplex using comparable sale in the area. 

I hope I understood your question correctly and my answer helped. Feel free to reach out If I can be of help. 

The net annual income in this situation should be gross income minus taxes and insurance. 22,200.0

minus roughly 3800.0 for taxes, minus 900 for insurance. That equals 17,500.0 per year net. divide that by the purchase price give you a cap rate of 5%. Hopefully this is a very nice duplex. If not, you can get better cap rates.