Housing Markets Bloom In Spring

The Real estate market is all about trends. Every corner of the earth sees a cyclic pattern to its housing market. Time of year, holidays, weather, and the financial health of our country are just a few of the causes for the ups and downs of a real estate market.

One of those trends stands in front of us over the next several weeks and months…the HOLIDAY BUMP! Historically, the holiday season is a slow one for Realtors®, which makes sense. People are focused on family and holiday parties and travel. However, with each ebb, there is a flow. And with the Holidays in our rear view mirror, we’ll see home prices gradually rise as the summer approaches.

With the average home price increasing about 5% from the Holiday season to summer and the impending rise of interest rates, buying a home today, rather than tomorrow, would be a good idea.

Conversely, if you’re a seller in this market, it’s time to call your favorite realtor and get the ball rolling with regard to listing your home. You’ll want it on the market as home values are rising.

Loan Constant

Is a measure of your annual Cash Outflow as a percentage of the loan amount. It is calculated as Annual Loan Payment/Loan Amount

Annual Spread %

Cap Rate – Loan Constant

Annual Spread $

Cash inflow – Cash Outflow

Unleveraged Return

Calculated by Net Operating Income divided by Cash Required to Close. It is important to compare your Unleveraged Return to Leverage return to determine if you have Positive Leverage (ideal), Neutral Leverage or Negative Leverage.

PMI

Mortgage Insurance if required

Effective Return on Investment

This is similar to Cash on Cash Return but also includes appreciation, and mortgage principal paydown to illustrate a more complete return.

Cash on Cash Return

An annual measure of a real estate investor’s earnings on a property compared to the amount the investor initially spent to purchase it and make it operational.

Your cash-on-cash return is your annual cash flow (pre-tax) divided by your total cash investment.

Capitalization Rate

Calculated by dividing a property’s net operating income by its asset value, the cap rate is an assessment of the yield of a property over one year. For example, a property worth $14 million generating $600,000 of NOI would have a cap rate of 4.3%. That means that you can expect a roughly 4.3% annual operating cash flow given the price paid for the property.

Gross Rent Multiplier

is a screening metric used by investors to compare rental property opportunities in a given market against each other. The GRM functions as the ratio of the property’s market value over its annual gross rental income.

Debt Coverage Ratio

is a metric that looks at a property’s income compared to its debt obligations. Properties with a DCR of more than 1 are considered profitable, while those with a DSCR of less than one are losing money.

Other

Any other costs you will be covering for the property. i.e. if you are going to pay for the pool maintenance then the Gross rent would be higher but you would include that cost here.

Maintenance Percentage

What do you anticipate it will cost per year to maintain the home from a Landlords perspective? Older homes will be higher than newer homes.

Real Estate Appreciation

What do you anticipate the property appreciating annually?

Closing/Fixup/Misc Costs

Include all Buyer costs at closing AND the cost you will put into the property after closing to get it ready to rent.