Investing in Portland Real Estate

Basic Evaluation of Income / Investment Properties

The basis of choosing an investment / income property is not only location, location, location, but also the potential investment return generated from rental income (net of all rental-related expenses).

The following formula provides the basic evaluation tool to determine the investment value of a piece of property. Please note that though some investor in the past like to use Gross Rent Multiplier (GRM) as a gauge for investment, it is not an effective indicator of the true investment value of a property.

Capitalization Rate Computation

The following formula provides the basic evaluation tool to determine the investment value of a piece of property. Please note that though some investor in the past like to use Gross Rent Multiplier (GRM) as a gauge for investment, it is not an effective indicator of the true investment value of a property.

Capitalization Rate (Cap Rate) = Net Operating Income (NOI) / Selling Price

NOI = Annual Gross Rent – Total Expenses (including property taxes but excluding debt services)

Example:

If the selling price of a property is $400,000 and the NOI is $30,000

The capitalization rate = $30,000 / $400,000 = 7.5%

7.5% is then the expected rate of investment return from the property.

Please note that to get the true CAP rate of your real estate investment, you need to get the actual / current annual rent, NOT the projected rental income. Some brokers may encourage you to use the projected income. Don't!!! You're buying the property at today's dollar, not a projected amount. Why on earth would you use income that you haven't earned to measure against the money you have to pay today?

The investment return fluctuates from market to market, and from time to time. It is all relative to the prevailing interest rates, the stock market and bond market condition. Contact Dave to get the latest investment return index with the type of property you might be interested in.

Other factors governing the investment value includes:

  1. condition of the building
  2. condition of the rental market
  3. availability of the parking, amenities, etc.
  4. convenience of location (public transport, convenience stores, etc.)
  5. crime rate of location
  6. competition

For in-depth analysis, you should also consider factoring mortgage cost into the equation, i.e. consider both the return on investment as well as return on equity.

Contact Dave to get an in-depth analysis of your investment strategy and to discuss your investment goals today.

All You Need is Dave

503-789-7633 (cell), Toll-Free 1-877-629-5825, or email us below to see how we can help you with your Portland real estate investment needs.


Call us at 503-789-7633 (cell), Toll Free at 1-877-629-5825 ext. 7 or email us to see how we can help you with your real estate investment needs.

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