Steve K -
Thank you for your thoughtful answer. It is helpful. I have had preliminary conversation with two realtors, one investment property firm and one neighborhood specialist. Those are ongoing.
Your note persuades me that the neighborhood doesn't fit the usual patterns because it is small relatively speaking and the area has had a very high level of SFH activity in the last few years. SFH prices went up 18% last year, 6% the year before, and above average returns before that. Comps from a few years ago are of marginal value. Plus there have been no 4 - 4+ unit buildings sold in the last six years. There aren't many of those in any case.
The are a couple of residences with 1-2 units “upstairs” that have sold at square foot prices that would put the present property well above $1 million. But the present building isn’t set up for a large owner space.
There is one particular issue that I have discussed a great deal with the realtors. I’d be interested in your thoughts. Assume that at the end of the first full year, the buyer of the present property received $75,000 in gross rent and the property appreciated in value by $50,000. The total return in gross value is $125,000. The down payment on a 30 year loan was, let’s assume, $250,000. I like that result and I look for buildings with bright futures.
Let me quickly add that I understand the basic stuff - real estate values can go up and down and there are expenses and risks related to generating the rent, etc., etc., etc. I have a good deal of experience with all of that. In general, though, I have a decided preference for rental properties with strong inherent value. So I look for properties like the present one, and I would walk away from a property that exceeded the 1% rule but was located between Four Seasons Total Landscaping and the crematorium.
I wonder what you look for to identify properties with strong inherent value. I am prepared to accept that the process is a product of judgement and experience and not a formula.
