Putting a value on a full duplex?

[darkness05]

@dpeacock IMHO, if net income before PM is $1400 and PM has a value of 10% gross rent then actual NOI is $960. So going-in cap of 1.54%. Really terrible. What about looking for a private investment in the area with an experienced developer if you want exposure to that local market? Nothing wrong with betting on massive speculative capital appreciation but good if it is backed by some income.

If your upper lending limit is 1.2 DCR, then your maximum loan on this property is $167,166. Fundamentals are whacked on this.

Hey Matt - this post really threw me for a loop - so I did some digging. When I said NOI - I am including the borrowing costs in there as well. The $1400 net for me was all of my borrowing costs + taxes + others less my total rent. I just noticed that NOI in the real estate world excludes the borrowing costs from that figure.

I just redid the calculations - omitted the borrowing costs - and our NOI is $3360/mo. ($4400 gross rent - $400 taxes - $440 PM fees - $200 insurance)

Does that make this deal make more sense? If I did it correctly, that would result in a DCR of 1.396 and a cap rate of ~5.3%

Lemme know!

 

[Martin1968]

@darkness05
I find this an interesting discussion. What's good for the one investor might not be as appealing to the other.
If I understand it well it's a purchase for 750K. 20% down leaves a mtg of 600K
That would be a payment over 30 yrs of about $2600 monthly. Taxes $400.00 and insurance $200.00 (I assume that is for both units together? find that very cheap but that could be me)
You said you would do your own PM?
You would want to calculate a minimum 5% maintenance at $220.00 monthly.
You are on $3420.00 monthly cost. So it's just under a $1000.00 cash flow.
(This doesn't include a vacancy rate percentage.)
Just factor in that at current $2200 a month per unit, when the bottom falls out like it did in Central AB, the units might only fetch 1800.00.

You can analyze it to death, but if you feel comfortable with all that as an investor and you think the properties will appreciate and on top of that, banking on having your tenants paying down the mtg for you over the next 5-30 yrs, then there is nothing wrong with it.
Ofcourse you can always find something better but you have to do what works. Not everyone has the time to chase down investment properties in the US. It's usually your local markets that you know best and it's a good place to start.
Cheers.

 

[Cory Sperle]

This is a great find for kelowna. Congratulations!

 

[Rickson9]

I just noticed that NOI in the real estate world excludes the borrowing costs from that figure.

Out of curiosity, in what other world do operating numbers include financing?

 

[Thomas Beyer]

Out of curiosity, in what other world do operating numbers include financing?

NOI always excludes the interest. It measure strictly the (unlevered) asset's performance.

 

[darkness05]

NOI always excludes the interest. It measure strictly the (unlevered) asset's performance.

I did not know this until today! Thanks guys

 

[darkness05]

@darkness05
I find this an interesting discussion. What's good for the one investor might not be as appealing to the other.
If I understand it well it's a purchase for 750K. 20% down leaves a mtg of 600K
That would be a payment over 30 yrs of about $2600 monthly. Taxes $400.00 and insurance $200.00 (I assume that is for both units together? find that very cheap but that could be me)
You said you would do your own PM?
You would want to calculate a minimum 5% maintenance at $220.00 monthly.
You are on $3420.00 monthly cost. So it's just under a $1000.00 cash flow.
(This doesn't include a vacancy rate percentage.)
Just factor in that at current $2200 a month per unit, when the bottom falls out like it did in Central AB, the units might only fetch 1800.00.

You can analyze it to death, but if you feel comfortable with all that as an investor and you think the properties will appreciate and on top of that, banking on having your tenants paying down the mtg for you over the next 5-30 yrs, then there is nothing wrong with it.
Ofcourse you can always find something better but you have to do what works. Not everyone has the time to chase down investment properties in the US. It's usually your local markets that you know best and it's a good place to start.
Cheers.

Yes I feel quite comfortable investing here in Kelowna. For sure there are better opportunities out there, but for my plan and vision, this definitely fits the bill. Your numbers are bang on. Just shy of $1000/mo as of now but $1400 as I handle the management side of it. As for the bottom falling out of Kelowna, aside from seeing a big interest rate hike, I just do not see that happening. This city is growing extremely fast - without any help from the oil patch whatsoever. Huge influx of GVA money is really pushing things along. Maybe I am being biased, but you just can't compare the Central AB market to that of Kelowna.

It does has a few other positives - it was suited up and down on both sides. It's actually a 10bed/6bath. The city shut the suites down about 4 years ago so the current owner is renting them as 5bd/3baths. I feel that this is underpriced in Kelowna's market for a 5/3. I have a 2bd/1bth that is about 30 seconds away that rents instantly for $1800. The current tenants are in a fixed term ending in the spring of '18 so at that point I will have an opportunity to freshen the units up and raise rents.

Also, it is beside a multi family and a commercial property - so re-zoning could be an option down the road? I am not banking on that but given the direction that Kelowna is taking with increasing its density, that could pay off quite nicely if I were able to get 4 rents from the one unit.

Only time will tell I guess!

 

[darkness05]

This is a great find for kelowna. Congratulations!

Thanks Cory!

 

[Thomas Beyer]

I did not know this until today! Thanks guys

NOI divided over the purchase price is usually referred to as the CAP rate. It might be as low as 3% in large high demand cities for well maintained low vacancy assets to as high as 12% for tertiary risky markets and high vacancy risk asset classes. The higher the CAP rate the higher the real or perceived risk.

CAP measures the ROI of an investment into perpetuity i.e. how much would you be willing to pay for a perpetual income stream. Using $60,000 income a year as an example: $1M with a 6% CAP rate. $500,000 with a 12% CAR rate. $1.5M with a 4% CAP rate. Etc

Example of a 4% CAP asset: duplex or apartment building in Lower Mainland or GTA.

Example of a 6% CAP asset: this duplex here

Example of a 12% CAP asset: a small mobile home park (currently for sale) in Northern remote BC.