Property is a sound investment
Alliance Ave: Competitive Market Analysis
Property managers new to real estate frequently have unrealistic expectations before they thoroughly understand their potential customers and competitors. You should start with a market analysis as early as possible or before purchasing the potential rental property. A market analysis enables you the ability to review the local market trends and help answer questions like What is a fair rental rate? How do I maximize the profits on this property? Is there new construction in the area and will it affect me?
I will be using a supply-based analysis. This analysis recognizes rental properties within the market that are similar to the subject property. Looking at your competition will help determine where is the best place to invest your resources and dollars to stay contentious. Since you can change issues, like location, distance to public services, or convenient stores. You can make adjustments and upgrades that can make your property more desirable.
The best place to start is researching the following information about properties in the properties area: Rent in the area, number of days units sit on the market, average vacancy rate, potential tenant profile: age, length of tenancy, occupation, size of families or singles, established vs. new construction. Part of a market interpretation is determining what is a competitive price for the size unit you have to rent. This analysis should be done at the end of every lease to ensure that you are maximizing your properties value.
The internet makes analyzing this information less laborious and significantly more accessible. Competitor websites, business reviews, and Social media sites provide valuable information about how your competitor communicates with consumers and potential clients.
Licensed appraisers use three approaches when calculating the value of a property; the sales comparison approach, and the cost approach, and the income approach. The Sales Comparison approach requires the collection of accurate sales data that is most applicable for this property’s value estimate. For the data to be accurate, you must use trusted sources for data collection and “collect sold comparable properties that occurred about the same time as the subject’s date value,” (Betts, 2008 p. 227) This shows what like homes where provides the amount other sellers have sold for and how long it took to get that price.
“16601 Alliance Ave is a 25 unit multi-family building in Tustin, CA 92780. This 20,564 square foot multi-family home sits on a 0.9-acre lot. This property was built in 1968. Nearby schools include Robert Heideman Elementary School, Saint Jeanne de Lestonnac School, and College And Career Preparatory Academy. 16601 Alliance Ave is near Pepper Tree Park, Frontier Park, and Tustin Centennial Park.” (Zillow, 2019) I was only able to find one possible comparable property: 1102 Wass St, Tustin, CA 92780. The Wass Street Villas are occupied with a mixture of long term and new tenants. The Wass Street Villas has composed four separate buildings consisting of one four bedrooms two baths, four three bedrooms two baths and six two bedrooms two bath units. All units are well-designed with a patio or balcony, central heating and cooling, and a shared laundry room. Additionally, there are ten double car garages, two single car garages, and additional open parking spaces available for residents and guests.
“The Cost Approach, surmises the replacement cost (RC), the cost of reconstructing a duplicate building and deducts the depreciation value (D) accumulated for the subject property leaving the depreciated cost (DC). ” (Betts, 2008) “The cost approach is a valuable approach to use when appraising newer homes that might have little or no depreciation; however, for homes older than a few years, it is not very reliable.” (Graham, 2015)
The Income/Capitalization Approach is inferred from the relationship between value, income, and the rate of return on an investment (Betts, 2008 p. 408). The contrast between the estimated gross annual (GI) income and vacant property cost (V) is the effective gross income (EGI). Subtracting the annual operating expenses (OE) from the effective gross income is the net operating income.
Zillow confirms that as of December 2018, its average home value is $547,000. The average rent in this area is $1850 to $2000 and forecasted to increase by 4.3% in the next year. I believe that this is a sound investment. Moreover, I would hire a management company to handle the day to day operations after some considerable upgrades to the units and the common areas.
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