surveyor’s ROI spreadsheet

[CA renter]

Whenever the RE cycle bottoms, you will usually see PITI payments are lower than rents.

Why? Because the barrier to ownership used to be a good down payment and good credit with high qualifying standards. Once you got that DP, you could usually do better than renting, especially with the mortgage deduction.

As credit tightens, I believe we will see this again — even in the better areas, with a few exceptions.

[surveyor]

gn:

There are several advantages to mult-units. One is vacancy – if a tenant leaves your SFR, you are 100% vacated, vs. one tenant departure in a 4 unit is 25%. It helps your cash flow. Also, 4 units is still considered residential so it is fairly easy to purchase. There are other advantages to SFR’s too, but my preference is multi-units.

It really depends on your disposition though and patience. Multi-units are for serious real estate investors and have more frustrations. They are more time intensive, so being a part time property manager may not appeal to most people. If that is the case, avoid multi-units, try SFR’s and see if it’s to your liking. That to me is a more serious question to answer as opposed to whether or not multis trump SFRs as a better investment (in which case, they do, if for no other reasons economies of scale).

As for appreciation, the multi-units have been appreciating like their SFR counterparts. However, there is not the same pricing pressure on multis because they have not been as subject to the funny loans and overreaching that has permeated the regular housing market. Or at least it hasn’t reached the multis yet as far as I know. Still, you can count on multis appreciating in certain ways similar to SFR’s, with a bit of stickiness in prices. I can see SFR prices going lower right now because of the foreclosures. Unfortunately, I don’t see multis going through that process for at least awhile (if at all) and you may get tired of waiting for multis to pencil out in San DIego (which also may never happen).

It is because of these possibilities that I have essentially given up on buying investment properties in San Diego (and California).

If there is a segment of multi-units to watch, it is the medium sized multi-units, from 5 units to less than 100 units. The commercial loan market has been absolutely terrible for loan applicants (something I can personally attest to) and it has been extremely difficult getting funding. The sellers or owners of these medium sized multi-units can be under a lot of pressure and I am seeing a lot of deals in those areas. Still, the problem is the difficulty in obtaining these commercial loans. They are not federally backed for the most part so they are extremely picky on who gets these loans and even if you find a good deal, you may not be able to find funding for it anyways. Catch-22.

Anyways, other comments:

1. This ROE calculator is NOT a rent-vs.-owning calculator. It is strictly for real estate investing purposes. The calculations for rent-vs.-owning are different.

2. Regarding estimating appreciation, in general you should use a 4% rate for appreciation for all properties. However, there is a catch because, like others mentioned, there are locations in the U.S. that do not appreciate at the same rates as others. There is also for those who are really savvy within the real estate markets they know, they can time the market and know what kind of appreciation to expect at certain points of the market. Somebody mentioned Detroit. For those in the know, Detroit (and that whole rustbelt area), you cannot expect to make money on appreciation. In fact, the prices there tend to DEPRECIATE (the rustbelt area is known to real estate investors as a “cash flow” market, cash flowing being the primary way to make money in that area). So if you are comparing a property in the rustbelt area vs. San Diego, you have to put in a 0% or -4% appreciation rate vs. San Diego’s 4% appreciation rate. From that you can take a look at how the ROE between the properties shake out and see which one is better.

3. Yes, the calculator is geared more towards investment properties.

Honestly there are so many variables you can play with in the ROE calculator. Unless you really know what you are doing, keep it simple.

[surveyor]

gn:

There are several advantages to mult-units. One is vacancy – if a tenant leaves your SFR, you are 100% vacated, vs. one tenant departure in a 4 unit is 25%. It helps your cash flow. Also, 4 units is still considered residential so it is fairly easy to purchase. There are other advantages to SFR’s too, but my preference is multi-units.

It really depends on your disposition though and patience. Multi-units are for serious real estate investors and have more frustrations. They are more time intensive, so being a part time property manager may not appeal to most people. If that is the case, avoid multi-units, try SFR’s and see if it’s to your liking. That to me is a more serious question to answer as opposed to whether or not multis trump SFRs as a better investment (in which case, they do, if for no other reasons economies of scale).

As for appreciation, the multi-units have been appreciating like their SFR counterparts. However, there is not the same pricing pressure on multis because they have not been as subject to the funny loans and overreaching that has permeated the regular housing market. Or at least it hasn’t reached the multis yet as far as I know. Still, you can count on multis appreciating in certain ways similar to SFR’s, with a bit of stickiness in prices. I can see SFR prices going lower right now because of the foreclosures. Unfortunately, I don’t see multis going through that process for at least awhile (if at all) and you may get tired of waiting for multis to pencil out in San DIego (which also may never happen).

It is because of these possibilities that I have essentially given up on buying investment properties in San Diego (and California).

If there is a segment of multi-units to watch, it is the medium sized multi-units, from 5 units to less than 100 units. The commercial loan market has been absolutely terrible for loan applicants (something I can personally attest to) and it has been extremely difficult getting funding. The sellers or owners of these medium sized multi-units can be under a lot of pressure and I am seeing a lot of deals in those areas. Still, the problem is the difficulty in obtaining these commercial loans. They are not federally backed for the most part so they are extremely picky on who gets these loans and even if you find a good deal, you may not be able to find funding for it anyways. Catch-22.

Anyways, other comments:

1. This ROE calculator is NOT a rent-vs.-owning calculator. It is strictly for real estate investing purposes. The calculations for rent-vs.-owning are different.

2. Regarding estimating appreciation, in general you should use a 4% rate for appreciation for all properties. However, there is a catch because, like others mentioned, there are locations in the U.S. that do not appreciate at the same rates as others. There is also for those who are really savvy within the real estate markets they know, they can time the market and know what kind of appreciation to expect at certain points of the market. Somebody mentioned Detroit. For those in the know, Detroit (and that whole rustbelt area), you cannot expect to make money on appreciation. In fact, the prices there tend to DEPRECIATE (the rustbelt area is known to real estate investors as a “cash flow” market, cash flowing being the primary way to make money in that area). So if you are comparing a property in the rustbelt area vs. San Diego, you have to put in a 0% or -4% appreciation rate vs. San Diego’s 4% appreciation rate. From that you can take a look at how the ROE between the properties shake out and see which one is better.

3. Yes, the calculator is geared more towards investment properties.

Honestly there are so many variables you can play with in the ROE calculator. Unless you really know what you are doing, keep it simple.

[surveyor]

gn:

There are several advantages to mult-units. One is vacancy – if a tenant leaves your SFR, you are 100% vacated, vs. one tenant departure in a 4 unit is 25%. It helps your cash flow. Also, 4 units is still considered residential so it is fairly easy to purchase. There are other advantages to SFR’s too, but my preference is multi-units.

It really depends on your disposition though and patience. Multi-units are for serious real estate investors and have more frustrations. They are more time intensive, so being a part time property manager may not appeal to most people. If that is the case, avoid multi-units, try SFR’s and see if it’s to your liking. That to me is a more serious question to answer as opposed to whether or not multis trump SFRs as a better investment (in which case, they do, if for no other reasons economies of scale).

As for appreciation, the multi-units have been appreciating like their SFR counterparts. However, there is not the same pricing pressure on multis because they have not been as subject to the funny loans and overreaching that has permeated the regular housing market. Or at least it hasn’t reached the multis yet as far as I know. Still, you can count on multis appreciating in certain ways similar to SFR’s, with a bit of stickiness in prices. I can see SFR prices going lower right now because of the foreclosures. Unfortunately, I don’t see multis going through that process for at least awhile (if at all) and you may get tired of waiting for multis to pencil out in San DIego (which also may never happen).

It is because of these possibilities that I have essentially given up on buying investment properties in San Diego (and California).

If there is a segment of multi-units to watch, it is the medium sized multi-units, from 5 units to less than 100 units. The commercial loan market has been absolutely terrible for loan applicants (something I can personally attest to) and it has been extremely difficult getting funding. The sellers or owners of these medium sized multi-units can be under a lot of pressure and I am seeing a lot of deals in those areas. Still, the problem is the difficulty in obtaining these commercial loans. They are not federally backed for the most part so they are extremely picky on who gets these loans and even if you find a good deal, you may not be able to find funding for it anyways. Catch-22.

Anyways, other comments:

1. This ROE calculator is NOT a rent-vs.-owning calculator. It is strictly for real estate investing purposes. The calculations for rent-vs.-owning are different.

2. Regarding estimating appreciation, in general you should use a 4% rate for appreciation for all properties. However, there is a catch because, like others mentioned, there are locations in the U.S. that do not appreciate at the same rates as others. There is also for those who are really savvy within the real estate markets they know, they can time the market and know what kind of appreciation to expect at certain points of the market. Somebody mentioned Detroit. For those in the know, Detroit (and that whole rustbelt area), you cannot expect to make money on appreciation. In fact, the prices there tend to DEPRECIATE (the rustbelt area is known to real estate investors as a “cash flow” market, cash flowing being the primary way to make money in that area). So if you are comparing a property in the rustbelt area vs. San Diego, you have to put in a 0% or -4% appreciation rate vs. San Diego’s 4% appreciation rate. From that you can take a look at how the ROE between the properties shake out and see which one is better.

3. Yes, the calculator is geared more towards investment properties.

Honestly there are so many variables you can play with in the ROE calculator. Unless you really know what you are doing, keep it simple.

[surveyor]

gn:

There are several advantages to mult-units. One is vacancy – if a tenant leaves your SFR, you are 100% vacated, vs. one tenant departure in a 4 unit is 25%. It helps your cash flow. Also, 4 units is still considered residential so it is fairly easy to purchase. There are other advantages to SFR’s too, but my preference is multi-units.

It really depends on your disposition though and patience. Multi-units are for serious real estate investors and have more frustrations. They are more time intensive, so being a part time property manager may not appeal to most people. If that is the case, avoid multi-units, try SFR’s and see if it’s to your liking. That to me is a more serious question to answer as opposed to whether or not multis trump SFRs as a better investment (in which case, they do, if for no other reasons economies of scale).

As for appreciation, the multi-units have been appreciating like their SFR counterparts. However, there is not the same pricing pressure on multis because they have not been as subject to the funny loans and overreaching that has permeated the regular housing market. Or at least it hasn’t reached the multis yet as far as I know. Still, you can count on multis appreciating in certain ways similar to SFR’s, with a bit of stickiness in prices. I can see SFR prices going lower right now because of the foreclosures. Unfortunately, I don’t see multis going through that process for at least awhile (if at all) and you may get tired of waiting for multis to pencil out in San DIego (which also may never happen).

It is because of these possibilities that I have essentially given up on buying investment properties in San Diego (and California).

If there is a segment of multi-units to watch, it is the medium sized multi-units, from 5 units to less than 100 units. The commercial loan market has been absolutely terrible for loan applicants (something I can personally attest to) and it has been extremely difficult getting funding. The sellers or owners of these medium sized multi-units can be under a lot of pressure and I am seeing a lot of deals in those areas. Still, the problem is the difficulty in obtaining these commercial loans. They are not federally backed for the most part so they are extremely picky on who gets these loans and even if you find a good deal, you may not be able to find funding for it anyways. Catch-22.

Anyways, other comments:

1. This ROE calculator is NOT a rent-vs.-owning calculator. It is strictly for real estate investing purposes. The calculations for rent-vs.-owning are different.

2. Regarding estimating appreciation, in general you should use a 4% rate for appreciation for all properties. However, there is a catch because, like others mentioned, there are locations in the U.S. that do not appreciate at the same rates as others. There is also for those who are really savvy within the real estate markets they know, they can time the market and know what kind of appreciation to expect at certain points of the market. Somebody mentioned Detroit. For those in the know, Detroit (and that whole rustbelt area), you cannot expect to make money on appreciation. In fact, the prices there tend to DEPRECIATE (the rustbelt area is known to real estate investors as a “cash flow” market, cash flowing being the primary way to make money in that area). So if you are comparing a property in the rustbelt area vs. San Diego, you have to put in a 0% or -4% appreciation rate vs. San Diego’s 4% appreciation rate. From that you can take a look at how the ROE between the properties shake out and see which one is better.

3. Yes, the calculator is geared more towards investment properties.

Honestly there are so many variables you can play with in the ROE calculator. Unless you really know what you are doing, keep it simple.

[surveyor]

gn:

There are several advantages to mult-units. One is vacancy – if a tenant leaves your SFR, you are 100% vacated, vs. one tenant departure in a 4 unit is 25%. It helps your cash flow. Also, 4 units is still considered residential so it is fairly easy to purchase. There are other advantages to SFR’s too, but my preference is multi-units.

It really depends on your disposition though and patience. Multi-units are for serious real estate investors and have more frustrations. They are more time intensive, so being a part time property manager may not appeal to most people. If that is the case, avoid multi-units, try SFR’s and see if it’s to your liking. That to me is a more serious question to answer as opposed to whether or not multis trump SFRs as a better investment (in which case, they do, if for no other reasons economies of scale).

As for appreciation, the multi-units have been appreciating like their SFR counterparts. However, there is not the same pricing pressure on multis because they have not been as subject to the funny loans and overreaching that has permeated the regular housing market. Or at least it hasn’t reached the multis yet as far as I know. Still, you can count on multis appreciating in certain ways similar to SFR’s, with a bit of stickiness in prices. I can see SFR prices going lower right now because of the foreclosures. Unfortunately, I don’t see multis going through that process for at least awhile (if at all) and you may get tired of waiting for multis to pencil out in San DIego (which also may never happen).

It is because of these possibilities that I have essentially given up on buying investment properties in San Diego (and California).

If there is a segment of multi-units to watch, it is the medium sized multi-units, from 5 units to less than 100 units. The commercial loan market has been absolutely terrible for loan applicants (something I can personally attest to) and it has been extremely difficult getting funding. The sellers or owners of these medium sized multi-units can be under a lot of pressure and I am seeing a lot of deals in those areas. Still, the problem is the difficulty in obtaining these commercial loans. They are not federally backed for the most part so they are extremely picky on who gets these loans and even if you find a good deal, you may not be able to find funding for it anyways. Catch-22.

Anyways, other comments:

1. This ROE calculator is NOT a rent-vs.-owning calculator. It is strictly for real estate investing purposes. The calculations for rent-vs.-owning are different.

2. Regarding estimating appreciation, in general you should use a 4% rate for appreciation for all properties. However, there is a catch because, like others mentioned, there are locations in the U.S. that do not appreciate at the same rates as others. There is also for those who are really savvy within the real estate markets they know, they can time the market and know what kind of appreciation to expect at certain points of the market. Somebody mentioned Detroit. For those in the know, Detroit (and that whole rustbelt area), you cannot expect to make money on appreciation. In fact, the prices there tend to DEPRECIATE (the rustbelt area is known to real estate investors as a “cash flow” market, cash flowing being the primary way to make money in that area). So if you are comparing a property in the rustbelt area vs. San Diego, you have to put in a 0% or -4% appreciation rate vs. San Diego’s 4% appreciation rate. From that you can take a look at how the ROE between the properties shake out and see which one is better.

3. Yes, the calculator is geared more towards investment properties.

Honestly there are so many variables you can play with in the ROE calculator. Unless you really know what you are doing, keep it simple.

[Author]

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