Price Difference
- Thread starter wtoews
- Start date
- Joined
- Sep 17, 2007
- Messages
- 783
QUOTE (wtoews @ Jan 27 2009, 04:48 PM) If there were 2 properties side by side and one had a legally suited basement, how much more would that be worth?
Generally speaking $25000,$50000,$75000 more?
Just some thoughts and input what everyone thinks would be great.
Warren
I`ve noticed the price differences between these properties up to $100,000. You have to take into consideration that one is a legally suited and you won`t have trouble from the city and as well utilites are separated, hopefully. I think that a very important factor is the so called "legal" suite should have utilies completely separated. As soon as they are not, the property isn`t worth as much. Also, of course the separate addresses is an important factor. If you buy a rental property with a suited basement, you are taking a risk. You just need to decide if it is worth the risk. Can the property cashflow if the suite gets shut down?
That`s just my quick thoughts.
Generally speaking $25000,$50000,$75000 more?
Just some thoughts and input what everyone thinks would be great.
Warren
I`ve noticed the price differences between these properties up to $100,000. You have to take into consideration that one is a legally suited and you won`t have trouble from the city and as well utilites are separated, hopefully. I think that a very important factor is the so called "legal" suite should have utilies completely separated. As soon as they are not, the property isn`t worth as much. Also, of course the separate addresses is an important factor. If you buy a rental property with a suited basement, you are taking a risk. You just need to decide if it is worth the risk. Can the property cashflow if the suite gets shut down?
That`s just my quick thoughts.
- Joined
- Aug 30, 2007
- Messages
- 13,881
QUOTE (wtoews @ Jan 27 2009, 04:48 PM) If there were 2 properties side by side and one had a legally suited basement, how much more would that be worth?
Generally speaking $25000,$50000,$75000 more?
Just some thoughts and input what everyone thinks would be great.
Warren
depends on rent .. let`s say $800/month = $10,000 / year times P/E ratio of 10 or 10% CAP = $100,000 times 50% for "illegal suite can be rented too" .. roughly .. as most houses are NOT valued on an income basis but on a comparable basis .. but same house with basement illegally suited would be maybe 50K less .. or 100K if no basement suite whatsoever !
Generally speaking $25000,$50000,$75000 more?
Just some thoughts and input what everyone thinks would be great.
Warren
depends on rent .. let`s say $800/month = $10,000 / year times P/E ratio of 10 or 10% CAP = $100,000 times 50% for "illegal suite can be rented too" .. roughly .. as most houses are NOT valued on an income basis but on a comparable basis .. but same house with basement illegally suited would be maybe 50K less .. or 100K if no basement suite whatsoever !
- Joined
- Aug 31, 2007
- Messages
- 493
QUOTE (wtoews @ Jan 27 2009, 05:48 PM) If there were 2 properties side by side and one had a legally suited basement, how much more would that be worth?
Generally speaking $25000,$50000,$75000 more?
Just some thoughts and input what everyone thinks would be great.
Warren
hi Warren,
not sure I understand your question completely.
Was is legal suited vs non legal suited, or legal suited vs no basement apt at all?
Also what area are you referring to?
Generally speaking $25000,$50000,$75000 more?
Just some thoughts and input what everyone thinks would be great.
Warren
hi Warren,
not sure I understand your question completely.
Was is legal suited vs non legal suited, or legal suited vs no basement apt at all?
Also what area are you referring to?
- Joined
- Dec 5, 2007
- Messages
- 2,880
Excellent question Warren!
The answer (which obviously can only be an estimate) can also help understand how much effort/money should be invested working with the city trying to make it legal, for those investors whose focus is on such projects. A friend of mine who is a Very rich developer makes most of his money buying properties then adding value by working with the city on approving new zonings/building permits.
Thomas, Great input as usual. However, I believe you meant:
depends on rent .. let`s say $800/month = $10,000/year TIMES EXPENSE TO RENT RATIO (AROUND 50%) times P/E ratio of 10 or 10% CAP = $50,000 (then times 50% for "illegal suite can be rented too" .. roughly .. and you get $25,000 roughly)
Always multiply by EXPENSE TO RENT RATIO (AROUND 50%) in order to translate rent/price to CAP which is net income/price, and you will get the number (estimate) you are looking for.
It`s an interesting question because I heard many real estate agents saying things like "oh, don`t worry about that, I worked with an investor who purchased 40 properties last year - most had illegal units in them. Then, he sold most properties and made a million dollars". They present it in a pretty convincing way. Although my Plexes are legal and I confirm they are prior to closing, I did consider that too especially in places where the city is more than accepting the situation due to very low vacancy rates. But then again, vacancy rate can go up in the future and as Rebecca mentioned there is additional risk.
Regards,
Neil
The answer (which obviously can only be an estimate) can also help understand how much effort/money should be invested working with the city trying to make it legal, for those investors whose focus is on such projects. A friend of mine who is a Very rich developer makes most of his money buying properties then adding value by working with the city on approving new zonings/building permits.
Thomas, Great input as usual. However, I believe you meant:
depends on rent .. let`s say $800/month = $10,000/year TIMES EXPENSE TO RENT RATIO (AROUND 50%) times P/E ratio of 10 or 10% CAP = $50,000 (then times 50% for "illegal suite can be rented too" .. roughly .. and you get $25,000 roughly)
Always multiply by EXPENSE TO RENT RATIO (AROUND 50%) in order to translate rent/price to CAP which is net income/price, and you will get the number (estimate) you are looking for.
It`s an interesting question because I heard many real estate agents saying things like "oh, don`t worry about that, I worked with an investor who purchased 40 properties last year - most had illegal units in them. Then, he sold most properties and made a million dollars". They present it in a pretty convincing way. Although my Plexes are legal and I confirm they are prior to closing, I did consider that too especially in places where the city is more than accepting the situation due to very low vacancy rates. But then again, vacancy rate can go up in the future and as Rebecca mentioned there is additional risk.
Regards,
Neil
- Joined
- Nov 2, 2008
- Messages
- 244
QUOTE (wtoews @ Jan 27 2009, 06:48 PM) If there were 2 properties side by side and one had a legally suited basement, how much more would that be worth?.......
Sorry, Newbie question: Could this be called a Duplex, if it has two legal apartments? Or is a Duplex differently build?
Best regards,
Alex.
Sorry, Newbie question: Could this be called a Duplex, if it has two legal apartments? Or is a Duplex differently build?
Best regards,
Alex.
- Joined
- Aug 30, 2007
- Messages
- 13,881
QUOTE (investmart @ Jan 27 2009, 06:27 PM) Excellent question Warren!
The answer (which obviously can only be an estimate) can also help understand how much effort/money should be invested working with the city trying to make it legal, for those investors whose focus is on such projects. A friend of mine who is a Very rich developer makes most of his money buying properties then adding value by working with the city on approving new zonings/building permits.
Thomas, Great input as usual. However, I believe you meant:
depends on rent .. let`s say $800/month = $10,000/year TIMES EXPENSE TO RENT RATIO (AROUND 50%) times P/E ratio of 10 or 10% CAP = $50,000 (then times 50% for "illegal suite can be rented too" .. roughly .. and you get $25,000 roughly)
Always multiply by EXPENSE TO RENT RATIO (AROUND 50%) in order to translate rent/price to CAP which is net income/price, and you will get the number (estimate) you are looking for.
It`s an interesting question because I heard many real estate agents saying things like "oh, don`t worry about that, I worked with an investor who purchased 40 properties last year - most had illegal units in them. Then, he sold most properties and made a million dollars". They present it in a pretty convincing way. Although my Plexes are legal and I confirm they are prior to closing, I did consider that too especially in places where the city is more than accepting the situation due to very low vacancy rates. But then again, vacancy rate can go up in the future and as Rebecca mentioned there is additional risk.
Regards,
Neil
actually I meant 50K not 525K as there are VERY few expenses .. no add`l taxes, no managemnt fees .. maybe a bit more utilities !
The answer (which obviously can only be an estimate) can also help understand how much effort/money should be invested working with the city trying to make it legal, for those investors whose focus is on such projects. A friend of mine who is a Very rich developer makes most of his money buying properties then adding value by working with the city on approving new zonings/building permits.
Thomas, Great input as usual. However, I believe you meant:
depends on rent .. let`s say $800/month = $10,000/year TIMES EXPENSE TO RENT RATIO (AROUND 50%) times P/E ratio of 10 or 10% CAP = $50,000 (then times 50% for "illegal suite can be rented too" .. roughly .. and you get $25,000 roughly)
Always multiply by EXPENSE TO RENT RATIO (AROUND 50%) in order to translate rent/price to CAP which is net income/price, and you will get the number (estimate) you are looking for.
It`s an interesting question because I heard many real estate agents saying things like "oh, don`t worry about that, I worked with an investor who purchased 40 properties last year - most had illegal units in them. Then, he sold most properties and made a million dollars". They present it in a pretty convincing way. Although my Plexes are legal and I confirm they are prior to closing, I did consider that too especially in places where the city is more than accepting the situation due to very low vacancy rates. But then again, vacancy rate can go up in the future and as Rebecca mentioned there is additional risk.
Regards,
Neil
actually I meant 50K not 525K as there are VERY few expenses .. no add`l taxes, no managemnt fees .. maybe a bit more utilities !
- Joined
- Dec 5, 2007
- Messages
- 2,880
Hi Thomas, Actually because you assumed the property is legal in the calculation I thought taxes are indeed going to be proportionally higher when compared to less units. In addition, managing an additional tenant, vacancy rate, repair and maintenance and utilities are going to be proportionally higher. Therefore, I would definitely NOT assume rent=net operating income. Net operating income should be much closer to 50% of the rent. And that`s a Superb estimate I learned long time ago from........ you and Greg
Cheers.
ps. I mentioned it should be $25K instead of $50k, not $525K instead of $50k
ps. I mentioned it should be $25K instead of $50k, not $525K instead of $50k