Real Estate Appraisal – Rental Properties

Real Estate Appraisal – Rental Properties

Real estate appraisal for rental properties isn’t the same as for single family homes. If you were looking at a 24-unit building, it would be difficult to find similar ones nearby that have recently sold. Therefore, a market analysis using comparable sales isn’t normally used.

It is also not ideal to use replacement costs either. How do you figure replacement cost if there is no land for sale nearby with proper zoning? This is used as a secondary method, though, and can tell you if maybe you should be building instead of buying.

Real Estate Appraisal Using Capitalization

Investors buy rental properties for the income. Therefore it is the income that is used to determine value. The rate of return expected by investors in a given area gives you the capitalization rate, and this is what you use to accurately appraise an income property.

Start with the gross income. Subtract all expenses, but not including loan payments. If a building’s gross income is %82,000 per year, and the expenses %30,000, you have a net before debt-service of %52,000. Now apply the capitalization rate to this figure.

If the common capitalization rate is .10, for example (ask a real estate agent), divide the income of %52,000 by .10, and you get %520,000. This is the value of the building. If the usual rate is .08, meaning investors in the area expect an 8%PRCTG% return, the value would be %650,000.

Easy Real Estate Appraisal?

Net income before debt-service, divided by the “cap rate:” It really is a simple formula. The tough part getting accurate income figures. Is the seller showing you ALL the normal expenses, and not exagerating income? If he stopped repairs for a year, and is showing “projected” rents, the income figure could be %15,000 too high. This would mean the building is worth %187,000 less (.08 cap rate) than your appraisal shows.

Another thing smart investors do when buying, is to separate out income from vending machines and laundry machines. If these provide %6,000 of the income, that would add %75,000 to the appraised value (.08 cap rate). Do the appraisal without this income included, then add back the replacement cost of the machines (probably much less than %75,000).

Be careful when using any real estate appraisal method. No formula is perfect, and all are only as good as the figures you plug into them. Used wisely, though, real estate appraisal using capitalization rates is one of the most accurate methods.

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Choosing a Property Manager for a Vacation Rental Home

Choosing a Property Manager for a Vacation Rental Home

So you are the proud owner of a vacation home ? congratulations. But just as with your own home, a vacation home needs a lot of tender loving care. Who is going to look after it when you are away? And, perhaps, how is it going to pay its own way? Thoughts like these tend to push vacation home owners into thinking about appointing a property management company. So what should you be looking for in a property manager, and how do you go about finding one with the qualities you want?

First and foremost, you have to decide if you just want the property taken care of, or if you also want it rented out. This will determine what kind of property management firm you want, and whether you need to check their credentials for marketing your firm, or just for looking after it. Assuming that you would like your home to generate some income for you, you need to look for several key capabilities

? A firm which will ensure the highest standards of care and attention to the fabric and contents of your property. Lots of rental income will not make up for the damage caused by careless renters. Make sure that your chosen firm will keep on top of every
? Personal check-in and check-out of every rental. Many firms take advantage of the availability of keyless coded locks to allow renters to check themselves in and out. This means that they never know who is in your property, and whether your four-bedroom home which is supposed to have a maximum of 8 guests actually has 16 grad party celebrants all over the floors
? The highest standards of cleaning. Cleaning a property thoroughly is time-consuming and expensive. Many property management firms cut corners here, and if they do, you will eventually pay the price in worn-out carpets and other forms of dilapidation.
? Superior marketing capabilities. Marketing vacation rental properties has become a sophisticated business these days. Make sure that the primary website on which your property will appear is ranked highly against the most popular keywords for your location. A local firm without much experience in search engine optimization may be able to take good care of your property but they won?t generate a lot of income since no-one will know that they exist.
? Great service for guests. Look for a manager who knows how to offer excellent service to guests: arrival baskets of food and drink, pre-booking of activities, restaurant reservations etc. If guests feel they are well looked-after, they will be more inclined to come again, but also feel more of an obligation to take good care of the property they are in.
? Great service to you. You should expect VIP treatment when you are using your own property, but also VIP service when you call up your property manager to enquire about availability, discuss renovation and maintenance issues, query your income statements or any other matter. Make sure you will always get to speak to someone senior who knows you and your property.

Have a look at this page: Whistler property management for a company which looks as if they know what they are doing. But make sure you talk to them in detail and go over the management contract with a fine tooth comb before you sign on the dotted line. You should expect to pay 35-50%PRCTG% of gross rental income to the management company; if they charge less you might want to be suspicious of what they are offering; if more, they?re probably too expensive. This may sound a lot, but remember that they are looking after your property for no fixed outlay to you, and they only make money when you do as well.

Good luck with your search.

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Buy Or Rent?

Buy Or Rent?

Should you buy or rent? It depends on your circumstances, and the real estate market where you are going to live. Years ago, I sold a home for a young couple who owed almost as much as the sales price on their house. They needed to take money from savings to pay the closing costs and sales commission. You can bet that they wished they had rented for the couple years they lived there.

This brings up the first thing to consider when comparing buying versus renting: the amount of time you’ll be there. Buying and later selling a home will usually cost about 10%PRCTG% or more of the value of the home. These costs mean that if the home only went up in value 10%PRCTG% or so in the year or two you lived there, you won’t be gaining anything (equity gain from principal pay-down is very little in the first years). You’ll often be better off renting if you’ll be in a town for less than a few years.

What about towns with faster rates of appreciation? Have you done some serious homework? If not, to assume appreciation will be more than the rate of inflation is just gambling. The sellers in the example above sold for the same price they bought the house for two years earlier – and this was in a decent and growing area. You can’t count on fast appreciation just because it has been that way recently.

To Buy Or Rent – Cost Comparison

Looking at buying versus renting, you have to take into account that in many places it cost much more to buy. In Tucson, Arizona, for example, a small home can cost %200,000. The mortgage payment, taxes, insurance and maintenance will add up to about %1,600 per month, but you can rent the same size home for about %800.

What does that mean? Many real estate fanatics will say you’re at least buying something for your money, and renting is throwing your money away. Of course in this example more than %1,000 of your payment will be going towards interest alone, and that’s not buying you anything.

Suppose you can afford the %1600 per month, but instead you rent for %800 and put the other %800 into a decent safe investment that makes you 5%PRCTG%? In three years you’ll have over %30,000 in this account. If the home appreciated at 6%PRCTG% per year (it has been more like 25%PRCTG% per year recently, but that can’t continue, and assuming so is not planning, but gambling), it would be worth %231,000. The costs of initially buying it and then selling it would be around %13,800 (2%PRCTG% buying and 6%PRCTG% selling), leaving you with a gain of about 19,000 once we include your principal pay-down.

In other words, you would be at least %11,000 better off if you rented and banked the difference. Every market is different, of course, so you have to do the math. Compare the total costs of owning versus renting, and then make safe assumptions about the rate of appreciation for homes.

If you’ll definitely be in one place for a long time to come, it will almost always be better to buy than to rent. In the last example, buying becomes a better bet after about four or five years. Also consider that if you get a fixed rate mortgage, your payment will never change, a benefit landlords won’t offer you that on your rent payment.

To sum up, look at the time you’ll be there, the comparison of total monthly costs, whether rents are going up fast, and whether you have good reason to believe home prices will be going up fast. Then look also at all the personal factors. Do you want to be responsible for the maintenance, yard work and unpredictability of ownership problems?

To buy or to rent? In the end, you have to work this one out by yourself.

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Less people are renting homes in Europe

Less people are renting homes in Europe

Over the last 20 years there have been significant changes in the choices people are making in whether they wish to rent or own their house, flat or apartment. In the early 1980′s West European countries averaged between 50%PRCTG% and 60%PRCTG% of homes owner occupied as opposed to rented. However as years progress into the early 2000s there have been some very significant changes with most countries seeing a significant reduction in the number of properties rented. Some of the most significant changes in the percentage of properties rented in Western Europe are:

From 1980/81 to 2001/02

UK from 42%PRCTG% to 30%PRCTG%; Luxembourg from 39%PRCTG% to 26%PRCTG%; Netherlands from 58%PRCTG% to 46%PRCTG%; Spain from 21%PRCTG% to 11%PRCTG%.

One possibility for this trend is the increasing standards of living combined with market changes improving the choice and availability of financial products to purchase properties. However also to be considered is the very significant differences when comparisons are made across countries. Below is a summary of the most recent data found on the percentage of homes rented for each country.

Austria 40%PRCTG%; Belgium 31%PRCTG%; Denmark 51%PRCTG%; Finland 32%PRCTG%; France 40%PRCTG%; Germany (ex FRG) 55%PRCTG%; Germany (ex DDR) 66%PRCTG%; Greece 20%PRCTG%; Ireland 16%PRCTG%; Italy 25%PRCTG%; Luxembourg 26%PRCTG%; Netherlands 46%PRCTG%; Portugal 21%PRCTG%; Spain 11%PRCTG% Sweden 39%PRCTG%; United Kingdom 30%PRCTG%.

One possible conjecture is that countries with a higher percentage of properties in the rental sector may have higher workforce mobility. This would suggest that Germany may have significantly higher workforce mobility than other West European countries. In contrast Spain may have relatively low workforce mobility.

The data available on property to rent across Western Europe raises many more questions than it answers however one factor that is very evident is the definite trend for a shift from rental to owner occupied homes.

For landlords and real estate letting agents who have properties to rent this may also suggest that competition will increase to find tenants. However there are other factors to consider such as the type of rental property. For example the UK rental sector can be split into three main categories, these are Council (e.g. Government owned), Housing Associations (often charitable trusts) and Private (e.g. private landlords and investors). In 2003 the Private sector accounted for 35%PRCTG% of rental properties in the UK, and this percentage was increasing as more people invest in private rental property.

Overall it is difficult to draw precise conclusions however taking the UK example there are some specific factors, firstly overall rental stock has reduced significantly from the 1980s into the early 2000s, secondly there has been an increase in private rental properties, particularly within the last 10 years. The increase in private rental has resulted in more companies such as www.simple2rent.co.uk who provide free services to landlords and tenants for homes to rent in London and throughout the UK.

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