Comps
One thing I often do when a client wants to buy a particular property is offer a list of comparables. I’ll list all the properties that are active, in contract, and that have been sold in the last year in the same area, including relevant details.
Comps show the price per square foot that properties are listed, and at what price they’ve sold. This way we know how low we can reasonably offer (in a seller’s market there are often counter offers).
While price per square foot can indicate upside value, rents will tell you immediate value. In real estate we ask: what’s the GRM? The GRM (gross rent multiplier) is the fastest way to determine an apartment building’s immediate value – divide the price by its yearly rents. The lower the GRM, the better the cash flow.
Comps tell you a story of a neighborhood, but they don’t tell you the whole story. Market activity can shift within months – inventory can dry up, more buyers enter the market – and what you could buy 8 months ago isn’t always what you can buy today. That said, it’s good to use as many tools as you can when making an investment, and comparables just make you wiser.
Read MoreKagan’s Blog
If you really want to know about the income property business, take a look at Kagan’s Blog. Moses Kagan taught me almost everything I know about real estate, and the Essential Reading section of his blog is worth its weight in gold, if digital words could be weighed.
While Moses focuses his time on buying and renovating apartment buildings for his fund, I work with him at Adaptive Realty to help people like you buy your own income property. What’s the difference between the properties he buys and the ones you will likely own? He buys rundown pieces of junk, spends tons of money renovating them and sells the updated property (like the beauty in the picture here) for a large margin. That takes a lot of risk, time, gumption, and cash. What most people like to do (and what I encourage) is to buy a property with decent leverage, one that needs little rehab, and then collect rents and watch it appreciate into your retirement.
We know how to do all kinds of deals depending on the kind of buyer you are, but 2-4 unit residential income properties are our sweet spot. Follow my blog to read about the kinds of deals that we do at Adaptive Realty, and what you can do with us.
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