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Discussion in 'Ask A REIN Coach (Certified REIA)' started by Kevin12223, Aug 7, 2017.

  1. Kevin12223
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    Kevin12223 New Member REIN Member

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    How do I analyze and property for adding a second suite in basement and living in the top half.
     
  2. ThomasBeyer
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    ThomasBeyer Well-Known Member REIN Member

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    You master the art of a simple spreadsheet, a basic tool for every real estate investor.
     
  3. Matt Crowley
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    Matt Crowley Active Member Registered

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    Look at the income invested and the rate of return it is expected to earn vs. putting it in the market at a similar investment risk.

    So if you put $20,000 cash into development of your basement suite and you get $1000 rent less $500 marginal expenses then you have $500 NOI per month. Now look at what the holding period is for your home. Assume 5 years for this example. If the basement suite increases your home value by $10,000 when you sell in year 5, then the cash flows look like this:

    CF time 0 = -20,000
    CF time 1 = 6,000
    CF time 2 = 6,000
    CF time 3 = 6,000
    CF time 4 = 6,000
    CF time 5 = 6,000 + 10,000 = 16,000

    Take those cash flows and plug them into a simple NPV worksheet: http://www.free-online-calculator-use.com/npv-calculator.html

    For this example at a 12% discount rate, the NPV is $7,300. This means that on top of the initial $20,000 investment you would be willing to pay an additional $7,300 to purchase this investment, assuming that 12% is a sufficient return for this level of risk.
     
  4. TAMI
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    TAMI Member REIN Member

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    find the cost of adding the basement suite , then add it to the prosoma of cash flow and NOI
     
  5. Tina Myrvang
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    Tina Myrvang Client Care Specialist Staff Member REIN Member

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    Hi Kevin,
    I will go over that when we do your Tutorial.
    Talk to you soon.
     

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