Value of my rental Property

[kirkkimberley]

Hello,



My Rental Property is valued at $280,000 (for the land and house) in Lloydminster.



The profit per year is $38,600.



Can add the asset value of $280,000 plus the income generation to find the value of the property? Or is it one or the other?



Thanks,

Kirk

 

[MaximeValmont]

Your building is worth 280 000$. The appraiser took the 38 600 and made some calculations, then came up to the 280 000$

 

[kirkkimberley]

Hello,



Sorry, maybe I was not clear.



If a person was to buy the home right now, and not rent it out, it is worth $280,000.



Using a Cap calculation, it is worth $280,000 (funny how that worked out) - based on the profit.



Do I get to add the value of the asset with the income profit, or is it only worth $280k?



Thanks,

Kirk

 

[MaximeValmont]

But who told you that " If someone buy the house right now and not rent it out it will be worth 280 000"?





And what do you mean using cap calculation? It's a house

 

[kirkkimberley]

I used comparables in the area; a house with our size, age, etc.. sells for $280,000.



Cap calc - Found it online "Capitalization Rate Calculation"



Kirk

 

[MaximeValmont]

I might be wrong on that one since I don't really appraise single homes,





But i'm pretty sure the appraiser will use the cost and comparison approach to determine the value of your house.





So even if you rent your house 100$ more per month, I don't think it will change anything. The bottom line is that the people that are going to buy your house in the future will buy it to live in it, not to rent it. I would even not bu suprised to learn that the fact that your house is leased for one year might reduced the value, if nobody wants to buy a house that is already rented.





Anyway, Keep looking for answers because i'm not 100% sure on that one. Come back with commercial buildings and i'll be 100% sure

 

[brentdavies]

3 methods to determine value



Market value, what a willing buyer will pay from a willing seller. The most common price used for single family houses in a town or city like Lloydminster.



Cost or Replacement Value- What the cost would be to buy the land and construct a similar property.

Commonly used for special use properties such as chuches, schools, etc.



Income approach for income properties. Methods used to establish value include using cap rates and gross rent multipliers with the income of the property. Single family properties or suited properties do not qualify. 4 units or more in a building is the starting point.



What you may have is a great single family property that will pay the mortgage and make the owner lots of money. The next owner may replace the renter with his family and the income dissappears.

 

[garyyeung]

Hi Kirk,



I have some townhouses in Lloydminster.

Just wondering, how much rent are you getting for the main floor? and how for the basement?



Thanks,

Gary

 

[kirkkimberley]

Hello Gary,



The house is broken into three suites - the basement is a 3-bedrooom, the main is a 3 bedroom, and the upper is a one bedroom.



I am getting $1600 for the basement suite, $1800 for the main level, and $1000 for the upper.



I have been in property management for a while, and am able to yield manage the unit to their full potential.



Thanks,

Kirk

 

[garyyeung]

Hi Kirk,



Those are excellent rents. Do you manage the property yourself or do you hire an on-site person?



What do you think about the future of Lloydminster's economy? say 5 years



Thanks,

Gary

 

[kirkkimberley]

Hello Gary,



Yes I have been managing them myself. It would be very hard to find a property manager that can get results like that.



This property is now at the point that it can be taken over by a management company very easily, hence the reason I am looking to sell (if the price is right).



The economy is booming again already. I own four companies in Lloydminster, and can see results from the boom already.



I am always looking for investors, so if you are interested, let me know. I always return good money to investors.



Thanks,

Kirk

 

[kirkkimberley]

Hello Brent,



I appreciate a single family home not being in that equation, but there has to be something said for a house generating $4200 per month in revenue.



If I am buying a company, I want a 100% return on my money in the first year. So, if I buy a company for $100,000 I want it to generate $100,000 in profit in the first year.



I was wondering if I can do this in real estate. Lets say an investor puts 10% towards a mortgage or loan, and wants a 100% return on his/her investment. So, if they buy a $380,000 house, and they put 10% down, $38,000. With my home, they would have that money back in the first year - 100% return. Then infinite after that.



Does it work that way?



I am going to be asking $375,000 for this income property - with $38,000 per year revenue. Is it attractive to an investor?





Kirk

 

[Thomas Beyer]

[quote user=kirkkimberley]

If I am buying a company, I want a 100% return on my money in the first year.
Impressive.



What kind of companies are those ?



If you can consistently do that then real estate may not be for you.



You can do 100% cash-on-cash ONLY in rare circumstances in a (re)development deal with high debt. In a buy-and-hold it is more like 8-15%.



You need to value your time somehow.



cash-on-cash is one figure (green $s), hours spent is another (blue $s.)

 

[MaximeValmont]

The only way you'll make these numbers is by buying really undervaluated property and selling them at market value.

 

[Rickson9]

[quote user=kirkkimberley]I am going to be asking $375,000 for this income property - with $38,000 per year revenue. Is it attractive to an investor?




It depends on the investor.



I would only pay $190-$200k for that kind of revenue stream, but I'm only speaking for myself. Good luck. I hope you get your number!

 

[garyyeung]

Hi Rickson9,



What cap rate do you look for?



Gary

 

[Thomas Beyer]

[quote user=kirkkimberley]

I am going to be asking $375,000 for this income property - with $38,000 per year revenue. Is it attractive to an investor?
The house is worth $280,000 as you stated. Why would someone pay $375,000 for it ? The rents are not sustainable, and likely not legal either, thus at risk by the city to shut one or two of the suites down if someone complains in the neighborhood.



10% of value for annual rent is excellent, and not so common in major cities in Canada. You find 10%+ multipliers in the US, or weak economic towns with a risk of property value loss. 6-7% gross rent to price is more common in decent Canadian cities, maybe 8% if you dig long and hard. Then deduct expenses and most houses woudl be a 3-4% CAP rate .. maybe 5% if you're lucky.



Careful screening of properties and locations is critical to make money in single family houses for a long term hold, and a low enough mortgage that allows sustainable cash-flow for a long term hold so you can pay the mortgage down or get the value upside .. in time !

 

[Rickson9]

[quote user=garyyeung] Hi Rickson9,



What cap rate do you look for?





Hi Gary, I'm looking for a 10% cap rate after 50% of gross revenue is taken away for expenses.

 

[kir]

[quote user=kirkkimberley] Hello Gary,





I am getting $1600 for the basement suite, $1800 for the main level, and $1000 for the upper.



I have been in property management for a while, and am able to yield manage the unit to their full potential.



Thanks,

Kirk




I just went to Kijiji and examined the activiites in Llyod...

The first 3 pages were just people looking to rent...

With so much demand, this sort of explains why you can separate a house into 3 suites like this.



What the heck is going on in Lloydminster? Must be oil.





Kir.

 

[kirkkimberley]

Hello,



Thanks for your reply. I am thinking the house is worth $375k, based on a 10% down on a mortgage, giving a 100% return on your investment in the first year.



It actually is legal. It was grandfathered a rental property. There is a two car driveway in the front, and a two car drive way in the rear. We have a very good relationship with neighbors, and being that it has been a rental for years, they do not have any problems with it. We keep it well maintained.



Realize that Lloydminster is an anomaly when it comes to real estate and rentals (because of the lack of doors). It is a community that is crying out for rental properties. Apartments are built, and filled before they are finished.



I managed a 97 unit apartment. It was just being built in 2010. At $1200 a unit, I had it 90% filled before the doors opened, and the few left over filled after it was move-in ready. That company has built 4 Apartments in Lloyd in the last few years, and fills them quickly. I maintained 100% occupancy while I was the manager, and had a waiting list (just like my rental house).



So, until there are enough apartments and rentals that are vacancy rate dwindles to less than 0, homes like mine will be fine.



On top of this, companies (oil) are bringing in workers by the hundreds, and are paying for their employees rentals/lodging. Because there are none, they put them up in hotels for $2000 - $5000 per month, per employee.... So my rental amounts look sweet to them!



Kirk