ECONOMIC MODELS

 

NOTE: The following are economic models used for illustration purposes only. They do not represent an offer for sale nor are they a description of a specific property. These numbers represent the ideal and then we try to come as close as possible in our search for your property.

 

These economic models are categorized using a Gross Rent Multiplier, "GRM", meaning the annual income of the building is multiplied by  a number/factor that represents average values in a specific neighborhood or for a type of building. In general, the lower the "GRM" the higher the cash flow. Combine a low GRM with high leverage and viola, you have an exciting investment!

 

There are 3 categories of properties we search for, and find, in the marketplace. Add or subtract the zeroes depending on your budget. 

 

CATEGORY #1. A good deal:  7 to 9 times gross annual income with a 25% down payment. A 5 to 10 unit building in a modest neighborhood composed of 2 bedroom 1 bath 750 square foot units renting for $700 to $850 per month. This type of building usually has the largest upside potential. Units can be improved and rents raised. Add $75.00 dollars per month to a 7 unit building = $525.00 per month X 12 months=$6,300 annual income. $6,300  X  8 gross rent multiplier = $50,400 increased equity and $6,300 increased cash flow per year. Click: INVESTMENT ANALYSIS AT 8 X GROSS

 

CATEGORY #2. A 10 to 14 times gross annual income building  requiring more than a 40% down payment  to cash flow. This type of building is usually located in an area of high desirability similar to Malibu or Beverley Hills. You would buy this type of building to park your money, keeping up with inflation and using the security of the area to protect your investment. This deal can be structured to yield 5% cash on cash.  Click: INVESTMENT ANALYSIS AT 10 X GROSS

 

AFTER YOU OWN your building for 5 years or so, it begins to look like this: Original purchase price becomes similar to a  6 times gross annual income puchase. The property now throws off a lot of cash and your equity position really improves. You can re-finance at a 70% Loan To Value,  or do a 1031 exchange into a larger building.  Click: INVESTMENT ANALYSIS AT 5.5 X GROSS

 

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Fascinating Facts:

 

A 100 watt light bulb will burn 90 lbs of coal over it's 750 hour lifetime.

 

An average home burns 10,000 lbs of caol each year.

 

Steve Nauert 

Ca. Real Estate Broker
License 00622276

310-493-1999