patrick.net

Why are you posting as a shill?

??? I'm genuinely interested.

At 25, having never bought a property, I consider myself a beginner. I read a lot on the topic, but I'm looking for additional insight.

I figure the worst comes to worst is no one answers the thread.

Really Hey You, Housing Boom, jvolstad, tovarichpeter?

Really?

If you are questioning who I am I can assure you I am not a troll.
http://www.movoto.com/about/the-team

I just started blogging about valuing real estate and I am trying to understand it better.
http://www.spotproperty.com/blog/

Is that what your are asking?

dodgerfanjohn says

Really Hey You, Housing Boom, jvolstad, tovarichpeter?

Really?

He's actually none of those people, so you're all being too harsh:

http://patrick.net/whoelse.php?user_ID=31671

Back to the question: The only valid valuation is on the income stream you could get out of it, namely rent.

I base it (loosely) on the area income.

If the average HH income in an area is 100k, the average price should be about 350k.

Also, price per square foot. If I can rent a 1200 ft2 apartment for $110/ft2, or can buy a 2400 ft2 house for $115/ft2 – so long as the area incomes support the prices, then the value is “fair” at least so far as I am concerned.

Rent in and of itself is a difficult metric in this environment – at least in my area. Many asking rents for houses (not managed apartments) are an attempt for an underwater borrower to cover their mortgage and asking rents are high (which is why the tend to sit unrented).. thus I use price / ft2 as a better measure

So it seems like rent and a rent multiple is the conservative method, while comps could be an alternate if rents aren't immediately available.

EastCoastBubbleBoy says

I base it (loosely) on the area income.

If the average HH income in an area is 100k, the average price should be about 350k.

And then this is to tell if the local market is over/under valued as a whole. Maybe an indicator of future price inflation or further deflation?

Please do not directly insult the other users.

For example, "Realtardo" is a direct insult. So I'm deleting all those:

mysql> delete from comments where content like '%Realtardo%';
Query OK, 33 rows affected (3.67 sec)

Roberto was far less insulting with only 5 direct insults, but to be fair:

mysql> delete from comments where content like '%dimwit Darrel%';
Query OK, 5 rows affected (2.40 sec)

dodgerfanjohn,

Comparing me to Housing Boom, jvolstad, tovarichpeter,

Thanks for the Compliment.

Billybigrig says

it starts to depreciate at the point of purchase

Who are you? That is exactly what has happened in Real Estate, you start losing money at the time of purchase.

I have hundreds of example, but a lot of them are here on this blog. Using today's rental income is as lame as using sales data.

You need to know what the value of the property will be five, and ten years from now. A lot of factors will go into play that are broader than what your local MLS will show you.

From now on I'm going to watch the secondary mortgage market, and how willing banks are to make loans.

So I value a property by how much I would pay in cash today.

OK, on request, one last mass delete of insults:

mysql> delete from comments where content like '%dumbross%';
Query OK, 18 rows affected (9.19 sec)

If you want to get my attention, just include @Patrick in a comment.

In fact, that works in general with any user. Putting @ in front of their username in a comment will cause that comment to get mailed to them, unless they turn off that feature in their profile.

robertoaribas says

I'm not interested in anything with less than 8% return on a pure cash purchase, and 15% return on cash on a leveraged purchase.

This is by far the best example of determining value and if more people had used this we wouldn't be in the trouble we are today.

All of that pink pony in the back yard, or we all have to live some place is just vandy land crap.

Every property is an investment. You win, you lose, but it is an investment class asset.

It's very simple...

1.) Based on rent - research the topic of rent to price ratios... lots of reading on this topic on patrick.net

2.) Based on recent comparables

robertoaribas says

As an investor, I do a simple rental return calculation, assuming a reasonable maintenance figure, and 11 months rent. [I comp the rent by the same method as above] use ALL expenses including taxes, insurance, HOA, etc. I'm not interested in anything with less than 8% return on a pure cash purchase, and 15% return on cash on a leveraged purchase.

That's what we look at and go from the market rents and work back, but will allow for capturing part of the return in getting the property up to market standard and even maint. because the O/H gets lower with every additional property. Some work out higher towards 12-13% but it really depends on the house itself(size and layout and such) and where it's exactly at.

Depends...

Standard residential in a city you'd measure by what it would rent out for. Commercial or something out in the country is a little different.

If your paying with freshly printed counterfeit money it's the value it last sold for. That way you get to keep your job.

I value a property purely based on my max limit I was willing to pay.
After that it was a matter of comparing amenities.
In my quest language like "Fully updated" was a disqualifies for me. Being that I'm drawn to houses built pre 1975, that usually meant, sturdy top quality cabinetry and fixtures were ripped out and replaced with cheap or gaudy, home depot Junk that will look cheap flimsy and dated with in 10 years. Like a living room decorated in silver and mauve furnishings in the 80's, flashy but the plastic and particle board crap has long been tossed. Where as that sturdy furniture that was given to a thrift store back then is still going strong re-purposed in someone Else's living room, that appreciated the rugged sturdiness of furniture built in the 60's and before.

I just wasn't interested in someones Ikea taste. So I actually looked for a house that had the original cabinets and fixtures, for two reasons. First if I replaced them it would have been with my taste and from a supplier that doesn't sell the same old crap you find at home depot and lowes. The second and best reason, people that haven't put the time and money in those items I don't care for, wont be expecting me to pay them for it in the price I paid.

Land, Yard, Space, sq footage and Rooms, then can I get it in my budget.

Everything else wasn't worth it at any price. Like they say, if you have to ask, you probably can't afford it.

Do you have a specific type of property that you prefer over others, like SFH vs multi, or duplex/4-plex, where you can turn or rent it quicker, or do you take each property for what it is and what the market is for that type of property?