Appraisal Scoop

Zilpy - Demographic Rental Data

Inman News reports - "Zilpy is like Zillow for rental properties, with rental price estimates, demographic data and heat maps based on median rental rates."  Click here for the complete article.

The new Web site, which launched last week and lists Zillow as a partner company, offers competition to Rentometer.com, another site that allows users to gauge rental prices in a selected area.

Zilpy.com is not a rental listings site. It is a rental research site that allows users to grab automated rental price estimates by address, city or ZIP code, and to refine searches based on type of rental property, a desired rental range, number of bedrooms and a range of square feet. One of the founders referred to the site as "the Trulia for the rental market."

Click here for the complete Inman News article.

Say Goodbye To The Gross Income Multiplier

You may be familiar with the gross income multiplier. This simple formula for determining the value of rental real estate has been around for ages.

The first book I read on investing in real estate advised me to "never buy a property with a GIM of more than 8." GIM is the acronym for gross income multiplier, of course, and the formula is this: divide the price by the gross annual rents to get the GIM.

In other words, the author was advising me to never pay more than 8 times the annual rent for a rental property. That seemed simple enough. I started looking at properties in terms of GIMs. If it was selling for 6 times rent it must be a good deal. If it was 12 times rent it had to be bad. It was great to have such a simple rule to follow - except that it never was a good rule to begin with.

Using a gross income multiplier is a crude way to put a value on a property. It is just too simplistic. Suppose two buildings each are selling for eight times their gross annual rent collections. One however, includes all utilities in the rent that tenants pay. That changes things, doesn't it? Of course, you could try to subtract out the utilities, to see what rents would be if they weren't included, and use that for the GIM. But that's not the only problem.

You need to constantly change the GIM expectations to reflect interest rates, because a property might be profitable at 12 times rent when interest rates are low, but a money loser at eight times rent if the financing is expensive.

Also, there are just plain different expenses for different properties, whether higher maintenance costs, insurance premiums, or whatever. Gross rent doesn't say much about the factor that really makes a rental property valuable: the net income.

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Condominium Project Analysis - The Appraiser's Role?

At least three in four home buyers obtain a professional home inspection to determine the physical condition of a home before they close the deal, but most home buyers aren't as likely to pay attention to a condominium community's financial condition when it is just as necessary.

"It is amazing that people don't spend much more time on a condo purchase when they are becoming "business partners" with strangers in a multi-million dollar real estate development partnership," said Robert M. Nordlund, president of Calabasas, CA-based Association Reserves, Inc.

"Buying a condo or town home is a lot like buying a share in a closely held, publicly-traded, non-profit real estate holding corporation. You don't just buy a home, you effectively enter a partnership and bad business surprises -- just like deferred maintenance surprises -- can cost you"

Without careful attention to financial details, you could overlook the troubled financial status of the one in three homeowners associations (HOAs) that are unable to meet major repair and replacement obligations because of insufficient reserves, according to Association Reserves.

What's The Appraiser's Reponsibility?