Today I feel really bad. I have been engaged by a consumer and what someone else sold them is, at best, a big loss. They were SOLD and didn't remember Mrs. Jones' simple math rules.
Gross Collections - (P + I + T + I + Other) x 12 - Vacancy % = ROI
This is oversimplified, but can put a pucker on ya if you are not careful.
In a nutshell, if you can't make $100 / month per single family home then it is not worth the investment. This is a minimum and most people expect more. This might be different in other areas, but for the most part this is reasonable in Columbus.
Mr. & Mrs. Texas investor (who have not ever seen their investment) just sent me the following email about my assessment of their portential sale prices:
Rich, Something just isn't making sense here. These properties were appraised by an independent appraiser (not a bank appraiser for mortgages) and we have 20% equity in each property. your figures are several thousand dollars less then even our payoffs. We cannot take that kind of loss.
We are speechless.
Some buyers agent, and I know who she is, sold these folks a bill of goods.
Tomorrow I will try to figure out a way to help them, but I can't change math.
I am rambling. Bye.
Do you have questions about distressed assets, receivership or bankruptcy sales, auctions? Email me at rfk@gryphonusa.com and I'll try to answer it in an upcoming post.
Richard F. Kruse is the President of Columbus, Ohio based Gryphon USA, Ltd. (www.gryphonusa.com). The Gryphon Organization includes Gryphon Asset Management providing receivership and consulting services in the distressed marketplace, United Country Gryphon Realty & Auction Group (www.ucohiorealty.com & www.ucohioauctions.com) providing real estate brokerage and auction services throughout Ohio and OnlineAuctionUSA.com (www.onlineauctionusa.com) providing commercial asset liquidations from the Midwest to East Coast.
United Country Gryphon Realty & Auction Career Opportunities Available. Call 614-885-0020 x 17
I just hope they don't totally freak when we have the "appraisal don't mean squat in the real world" conversation.
That was an unfair shot that the appraisers and I am sorry. I just see so much crap.
R
Hi Rich,
Some of the best real estate investors I know can't do the math, all they know is there's money left over each month and their checks don't bounce.
I'm a big advocate of single family investments, as you know I wrote three books on the subject, but taking an income approach to value, is no way to appraise single family homes regardless of intended use. Explain to your people that most appraisers are independent, but they should have used one recommended by a lender willing to accept his findings.
Bill