Market Research Question Relative to Pro-Forma Development

[Jared Foster]

As I have mentioned in other posts I am developing a business plan and have been doing some market research for an area I am interested in. I have looked at HUD market studies for the area, private reports, and census data to make a conclusion about the market rental rates, vacancy, and growth. I have started looking at properties on-line and finding some pretty low cap properties that quote fairly low expenses, which generally look like proforma data. Based on the asking price, NOI, and other data shown in the postings the returns are not looking like something I would like. If they have been playing games with expenses the renturns look even worse. So does this mean the market isn't what I thought it was or are property owners just being too opptimistic? How would people recommend building up the inputs for my proforma? 1. For asking price, should I use a price based on an assumed cap rate. 2. Assume rental rates/vacancy rates that I am seeing in the area. 3. Hold to the 50% operating expenses? I would like to purchase 2 properties a year and wanted to build a proforma to estimate cashflows for 5 years in my business plan and then build a property specific model for properties I want to look at in more detail. While I am building my plan should I contact agents and ask questions about properties? Thanks, JaredF