QUADPLEX PROPERTY EVALUATOR MAC
Loan Options Fannie Mae Freddie Mac Construction Loans Loans Under $1M Freddie Mac SBL FHA/HUD Multifamily Loans Foreign National Loans CMBS Bank Loans Life Companies Bridge Loans Hard Money Soft Money Mezzanine Financing Crowdfunding SBA 504 Loans Mezzanine Construction Loans USDA 538 Loans Fix and Flip Loans Fractured Condo Loans.I do my best to be an investor friendly agent and get you comparable sales info and refer leads you can use in your business.Valuing a Property Using the Gross Rent Multiplier Formula - Multifamily.Loans Multifamily.Loans Have questions about local GRMs or Cap Rates? I’ve got the info! Check out my investor Google Sheet here with local GRMs and Cap Rates. Remember, Cap Rates are the opposite of GRMs – a HIGHER # is BETTER. “Good” Cap rates are up to you, but many real estate investors target cap rates between 8% – 15%. Unlike a GRM, a cap rate is more closely equivalent to your return-on-investment, or ROI. A fourplex is priced at $195,000 and each unit rents for $595/mo, or $2380/mo total, or a $28,560/yr. Or you can work backwards from a purchase price to calculate the Cap Rate by dividing the NOI by the proposed property price.Įx. Your investment strategy calls for a Cap Rate of at least 10%. Assuming 50% of that $18,000 is expenses, your Net Operating Income is $9000/yr. A duplex rents for $750/mo per side, $1500/mo total and $18,000/yr. NOI / Area or Desired Cap Rate = Property Value.Įx. Values based of the Cap Rate are calculated as follows: After subtracting these expenses, you have the Net Operating Income (NOI). You can use whatever expense estimate is justified by your business plan. Expenses include management fees, maintenance, capital expenditures, vacancy, taxes, and insurance. Not including the mortgage, expenses will be approximately 50% of a property’s income. For my quick math, I use the “ 50% Rule”. Unlike GRMs, you have to have some concept of what your expenses will be. In my experience, this is the more popular method for Income Approach value analysis. Some areas like New York City or San Francisco have GRMs as high as 30 (meaning if you took the rental income of the property, and had NO expenses whatsoever, it would take you 30 years to earn back what you originally put into the property)! Cap Rates Often under 10 is considered pretty good. Remember, with GRMs, a SMALLER # is BETTER. GRMs can be used similar to using the comparable sales method, as you can calculate GRMs for the area you are purchasing in, and ensure that your GRM is close to or better than the GRM for the area.Įssentially, a GRM tells you how many years it would be, if you had NO expenses, that a property would recoup its entire value. A fourplex is priced at $195,000 and each unit rents for $595/mo, or $2380/mo total, or $28,560/yr. GRM = Proposed Price / Gross Annual RentsĮx. Or you can work backwards from a purchase price to calculate the GRM by dividing the purchase price by the gross annual rents. Your investment strategy calls for a GRM of less than 7. Value = Gross Annual Rents x Area (or desired) GRMĮx. not including vacancy or expenses) by the GRM figure that you are targeting. GRM is calculated the following: Multiply the annual Gross rents (i.e. There are two main methods of evaluating a property using the Income Approach: Gross Rent Multipliers (GRMs) and Cap Rates. This is the only method you should be using for commercial properties like apartments, and even other multi-families like fourplexes and duplexes.
Hence the income approach of home appraisal. Or consider – as an investor – who cares what other people are paying for comparable homes? The only amount that you should pay is the amount that makes you money. This method is useful to investors as well when they want to know the value of their home, especially when flipping or wholesaling.īut what about buy-and-holds, or unique investments like apartments or other multi-families that have no real comparable sales? Also known as a CMA (Comparative Market Analysis), this is the method by which we look at what comparable homes are selling (or not selling) and determine what that home would likely sell for. I’ve previously discussed the typical method, and often the only method a real estate agent will ever use – the Comparable Sales Approach. There are three methods of valuing or appraising a home. This is something everyone needs to know, whether it be a buyer, seller, investor, or lender.
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