Estimating Future Rental Income

analyzing a deal rental income rental properties Nov 24, 2021

For our purposes here, whether you're going to build a little house, or whether you're going to build 50 townhomes, this is a back of the envelope—analyzing a deal quickly kind of a formula.

Chase from its most basic point,

Analyzing a Deal. Where do you start?

Chase Leavitt: The rents. Figuring out what the rents are in that market? It could be a single-family hometown, home apartment building, whatever it is. Just take it one unit at a time. And just analyze the rents by calling property managers in the area for different assets that are currently being managed in the location that you're looking.

So, look at the rents, take a real close look, understanding what product type, if it's to be built. And it's not there yet understood what you want to build there. And then look at similar comps within that location.

Steve Olson: Similar comps being the key.

Sherida what do you do?

How do you analyze rents?

Sherida Zenger: Well, obviously, if it's something that is existing, you're going to call property management and get those rents. So, you can back into it that way.

Obviously, that's a quick way to analyze an existing property, but the same thing as Chase. I'm going to look into the area, see what things are renting for. Visit some property managers. You know, if I, maybe if I know someone I can call around and ask them, hey, what are you currently getting for rent?

I know my kids bought some townhomes in American fork, Utah, and I had asked somebody, Hey, what are current rents? It was one of our associates just because she has leased quite a few units in there just to kind of see. So you can ask around people usually are pretty friendly and will give you advice.

Chase Leavitt: Let's take it a step further besides the rents. Where else are you getting income garages, um, washer and dryer? Pet fees. Uh, we have a tech package.

There's a lot of different ways you can get additional income. So, once you understand the rents pallets, you're going to get income to really understand your, your monthly gross income.

And then once you know, your monthly gross income, just times that by 12 and that's your annual.

Steve Olson: That really is the jumping-off point. And when we're talking about build to rent, because the value, what you're willing to pay. What you could potentially sell the property for, all com jumps off that.

What is the income? That's what somebody is buying, right? They want that income stream with the property. So that's what the value is derived from.

I have a little bit of experience on this right now. You guys know I'm working on a deal in Indiana, and I've pulled all the data on it and there's not a lot of data. So, the question is, is there an opportunity here?

Or is there not a lot of data for a reason, right? Because there is no opportunity because markets are efficient markets find the money, right. There's nothing they do better than that. But, uh, one thing that I did and disclaimer, kind of like what chase said, we're getting off the back of the envelope to a certain degree, but uh, if, if something is close on the back of the envelope, you're like, ah, I got to dig deeper than it passed the initial smell test.

How many deals have we had on the back of the envelope and decided we don't need to spend one more breath on this deal. It's done.

Watch the rest of the episode here:

Submit A Question To Be Covered On The Show!

Let us know what topic(s) you want covered in a future episode.

*Submitting this form opts you in to receive news and updates from our team.