surrey real estate investors club - property analyis presentation

Surrey Real Estate Investment Club

Welcome!

REI with a Cause! www.AspireRealEstate.ca

"Real estate is at the core of almost every business, and it's certainly at the core of most people's wealth. In order to build your wealth and improve your business smarts, you need to know about real estate."

~Donald Trump

Surrey Real Estate Investment Club

Welcome!


“Risk comes from not knowing what you’re doing.”

~Warren Buffet

Sponsors


Welcome to the Surrey Real Estate Investors Club!

Future Plans


1. Strategy & Getting Started2. The RE Cycle and Selecting An

Investment Area3. Property Selection and Cashflow4. Financing5. Due Diligence & Making an Offer6. Tenant Selection & Management

Review of Last Meeting


• What is the real estate cycle and how do we use it to our advantage?

• How do I decide where to invest?

• Location fundamentals – macro-environment, economics, learning a sub-market

www.AspireRealEstate.ca/blog

Tonight’s Agenda


• More on property selection

• Rules of Thumb

• Calculating cashflow

• Calculating returns

• Some examples

The Legal Stuff…

The information contained herein (the “Information”) is intended for general informational purposes only and should not be relied upon by recipients hereof. Although the Information is believed to be correct, its accuracy, correctness or completeness cannot be guaranteed and has not been verified by either Aspire Holdings or any of its affiliates. Views expressed in this presentation are based on research materials available from sources that Aspire Holdings (d.b.a. “Aspire Real Estate”) considers reliable but neither guarantees, warrants nor assumes any responsibility or liability of any kind with respect to the accuracy, correctness, completeness, or suitability of, or decisions based upon or in connection with, the Information. All real estate opportunities come with varying degrees of risk and past performance is not an indicator or guarantee of future results. Prices can go up or down and current performance may be lower or higher than any performance data quoted for comparisons.



What are your considerations when picking a property?

Picking a Property


A. Area

B. Property Specific

C. Deal/tactic specific

Some things to consider

Calculating Cashflow


Income – Expenses = Cashflow

In almost all cases, you need this to be a positive number!!


Will it cashflow? Rules of thumb

• Income/financing ratio

65% of income should be max for financing


Will it cashflow? Rules of thumb

• 1% rule

Need to know1. Price of the property2. Rental income

Ex: $200,000*0.01=$2,000

if you get $2,000 rental income you will most likely cashflow.


Will it Cashflow? Rules of thumb

Gross Rent Multiplier (GRM)

Need to know1. Price of the property ($200,000)2. Rental income

Ex: $200,000/(2,000x12)=8.34

Up to about 10 it will most likely cashflow or be neutral – in some cases up to 15.


Gathering information• Valuation of a property

• What is the cashflow?• What are other properties in the

area worth?• What would it cost to build that

property right now?


Gathering information• Rental Income

• www.padmapper.com• www.craigslist.org• www.kijiji.ca• Other local sites (ex.

Usedvictoria.com)• Local classifieds• For rent signs



Income – Expenses = Cashflow

In almost all cases, you need this to be a positive number!!



For a typical buy and hold, single-unit, residential home, what are the income sources?

Calculating Cashflow: Income


• Primarily rent

• Storage

• Garage

• Other parking

= Gross Income

Gross Income – Vacancy = Gross Operating Income

Calculating Cashflow: Expenses


For a typical buy and hold, single-unit, residential home, what are the expenses?



• Mortgage

• Other Utilities (heat, hydro)

• Repairs and Maintenance

• Property Management

• Water Utility

• Insurance

• Property Tax

• Strata Fees

Gross Operating Income – Expenses

= Net Operating Income

Property A A BList Price $309,900 $309,900 $279,900

Potential Purchase Price $307,000 $295,000 $270,000 Price / sq.ft $246 $236 $196 Down payment % 20% 22% 20%Down payment $ $61,400 $64,900 $54,000Mortgage amount $245,600 $230,100 $216,000Closing costs (2%) $6,140 $5,900 $5,400Total cash required $67,540 $70,800 $59,400 Amortization (yrs) 25 30 30Amortization (mnths) 300 360 360Interest Rate 4.00% 2.89% 3.80%Periodic Rate 0.33% 0.24% 0.31%Mtg Pmt $1,292 $954 $1,003Strata/Condo Fees $150 $138 $150Property Taxes / Water $200 $180 $190Heat $0 $0 $0Electricity $0 $0 $0Insurance $30 $15 $22Maintenance $160 $132 $145Prop. Management $160 $0 $0

Total $1,832 $1,419 $1,510Rent $1,600 $1,650 $1,625GRM 16.0 14.9 13.81% Rule 0.52% 0.56% 0.60%Monthly Cashflow -$232 $231 $115Annual Cashflow -$2,783 $2,767 $1,382Comments Reserve Fund = 2 mths

Return on Investment


There are many methods and calculations to calculate returns – some simple, others very complex!

For these examples we will use:

ROI = Gain from Investment – Cost of Investment

Cost of Investment


Return on Investment Calculations - Buy & Hold

$315,000 5 yrs 10 yrs

After 5 years - OSB on 1st = $194,633 $194,633 $194,633 $168,840 $168,840Annual Appreciation 3% 0% 5% 3% 5%Est value at X% annual = $365,171 $315,000 $402,029 $423,334 $513,102Net Equity (after 5/10 yrs) = $170,539 $120,367 $207,396 $254,494 $344,262Cashflow (after 5 yrs) = $6,911 $6,911 $6,911 $13,822 $13,822Total Return (equity + cashflow) $177,450 $127,279 $214,307 $268,316 $358,084Capital Invested $70,920 $70,920 $70,920 $70,920 $70,9205 Yr / 10 Yr ROI 150.2% 79.5% 202.2% 278.3% 404.9%Avg Annual ROI (not compounded) 30% 16% 40% 28% 40%

Need more cashflow?


• Increase rents? Pets?

• More cash down?

• Other income sources?

• Pay less?

• Reduce expenses?

• Increase amortization?

Take Away Summary


1. Look at the bigger picture, not just the deal

2. Analyze the numbers and stress test them

3. Leave your emotions at home!

Feedback, Prizes and Action plan!

Questions or comments? Please let us know!

Next meeting Wed. April 24th @7pm Summary: www.AspireRealEstate.ca/blog/


• Find a new person in the group and tell them what you are going to do in the next month to achieve your goal!

• Follow up at next SREIC meeting.