Valuating a Potential Rental Property

[Dirk Steele]

Valuating a Potential Rental Property

I am new to investment property and searching for that next great investment. Searching in a hot market like Seattle area is challenging as the retail buyers drive up the prices beyond what makes sense as an investment. I am primarily staying with multi-family properties as they provide high cash flow(and you know what they say about cashflow…). While searching Zillow or Trulia or the leads my Agent would send me I found that most multi-family homes were price for retail purchase but touting it as a “great investment”. Claiming cap rates anywhere from 4-8% but I still not sure I trust cap rates from sellers. I needed a way to know that the asking price was reasonable from an investment POV based on what I could reasonable expect in rent should I purchase the property. I needed kind of a reverse amortization chart. I wanted plug in some gross monthly rents and instantly tell me if the asking price was supported my the potential rents. So, that’s what I set out to create. I am sharing this with you to get some feedback as I suspect I might have re-invented the wheel. Let me know your thoughts.

Rents	-	Expenses	=	PITI	RevPMT(PITI)	Property Value
2500		400		2100	=	420K

When I do this, I start by assuming zero cash flow to see what the value would be and then add, in my minimum acceptable cash flow.