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Real Estate Brokerage & Property Management Blog

Here you will find the latest real estate endeavor stuff I engage in on a daily basis.

Wednesday, October 14, 2009

Investment Analysis- Fourplex


Hi Prospects & Friends,
I came across a property I've been watching mid of this year and wanted to share the investment analysis to understand why I'm still watching it. Currently the Fourplex is listed for sale and see stats below:

Listing Price- $279,900
Gross Sq.ft.- 5,832
Fourplex Components- Has four 2br/2ba on each side
Year Built- 1984
Yearly Taxes- $6,017
Projected Insurance- $275/mth
Price/sq.ft last 6mths- $54
Rent/sq.ft. last 6 mths- $0.54
Calculate- 5% for reserves
Misc- Location A+ (Has main drag & inferior to schools/restaurants/parks/malls/churches/etc)

Market says property should be worth $315,000 ($54 x 5,832 sq.ft.)
Market says rent should be worth $3,149 or $787 per unit ($0.54 x 5,832 sq.ft. /4=$787)

Current Owner/Landlord is renting units at $695 & $625 with long term tenants in signed lease contracts. So $695 x 2 + $625 x 2=$2,640/mth in contract rent. Well since the market in last 6 months says this property is worth $54/sq.ft. & owner has it listed for $47.99/sq.ft I still will not settle for $279,900. Price needs to come down to my investment analysis range of $215,155-$235,967, because yes as a broker/realtor the $54/sq.ft is enticing since it's really worth $315,000 and seller is listing it for $279,900, but trick is my investor hat is on right now and not the broker/realtor hat (that hat will be put on when I sell). My investor hat says see investment analysis below:

Ignore the market rent at $0.54/sq.ft, since the current owner has tenant signed contracts at $0.45/sq.ft. (by law you have to honor lease contracts, until they expire) So I will work with the $0.45/sq.ft instead knowing I know as a broker/realtor the market rent is really $0.54/sq.ft in last 6 months. So I will demonstrate at a 8% and 9% since rates are higher on investment properties, and no points were applied/involved/factored ($2,640-$501-$275-$132/7.34x1000=$235,967)
($2,640-$501-$275-$132/8.05x1000=$215,155)

So my investment analysis range of $215,155-$235,967 on a property currently being listed for $279,900 and really worth $315,000 is a good real estate endeavor to understand and learn to apply to your investment properties. Since seller already has property marketed below market why not wait for seller to continue to reduce your "Jewel Investment Property" to your range? You cant loose in this investment scenario, because seller already has 4 plex listed at $279,900 and it's really worth $315,000. I like to build instant equity so that's why I like to use my investment analysis range equation, while I also apply these rules:

Depreciation Factor- 27 years maxium for this investment property
Maxium life Expectancy- 40 years (it can go beyond this if it's been well cared for with the plumbing & electrical)

Building is already 25 years old, so that leaves me to work with 15 years if I was to buy it now in 2009, and if it falls in my range of $215,155-$235,967 (I would keep it at least 2-5 years out of the 15 years, for capital gain tax rules and market subdivision trend analysis conclusions). So since I already know it's got $35,100 in equity (based on the $279,900 minus market) and can factor in the repairs once analyze the inspection report with inspector/contractor/electrician/plumber I wouldn't want to touch the $35,100. So if I'm told it will cost $15,000 to update the 4 plex eventually with repairs then you can see why my range makes since of $215,155-$235,967 from the beginning of analyzing the 4 plex. My range is also actually saying in hidden numbers if seller lowers to my range I can earn in equity a range between $79,033-$99,845 & that's not including my down payment, instead of the $35,100 which is based on the $279,900 which is already below market, but not below enough for me to touch. I've bought 7 properties using this investment analysis equation and it does build your equity faster if you apply your numbers correctly from very beginning. Also since I'm a broker/realtor and represent myself in my transactions I just take the commission and apply it to any needed repairs and deduct it as an expense against my salary for managing the property, as well as the maintenance expenses for the property. I will write a book in detail about this soon. Till then check out my "Create Wealth From A Foreclosure Homestead" book & ebook on right currently for sale.




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