Here is some positive and exciting news for the Tallahassee real estate market! I am meeting with the founder of a European real estate investment trust next week in the hopes of bringing a large fund to Tallahassee.
As any long-term real estate investor will tell you, there are times when it is smart to sell real estate (i.e. 2006), and there are times in which a savvy investor will buy real estate. That time is upon us.
Currently, anybody can look at the Tallahassee MLS and find many properties that are selling at prices below which they could be replaced (cost). When real estate market values drop below cost, it signals a time when strong, long-term investors enter back into the market. They don't just buy something because it is selling below cost, rather this is just a rule of thumb that signals that great buying opportunities are becoming easier to find.
Smart Real Estate Investment
There are some simple rules of thumb that an investor can use to sniff out some great deals. A few weeks ago, I wrote a blog about using gross rent multipliers to determine whether a property will deliver a solid return on investment. I pointed out that Tallahassee was the second highest ranked city on valuations based upon GRM, so it is no surprise that we have caught the attention of large money funds from "across the pond."
As a simple summary, we look at the cost of acquiring a piece of property and compare it with its expected rental rates.
Market Value ÷ Annual Gross Income = Gross Rent Multiplier (GRM)
For example, if a property is on the market for $129,000 and it rents for $21,600 per year, we say it has a GRM of 5.97. Historically, I have found that properties purchased with a GRM below 7.0 will yield a long-term annualized return exceeding 14%.
Real Estate Investment Example
Years ago, I wrote a blog titled The Real Estate Stack which showed how to calculate ROI for a property investment. Using that methodology and historical information, one can expect a solid return from this example.
Using the following assumptions, we find that the above example yields an internal rate of return (IRR) of 23.5% for an investor who buys the property January 1, 2011 and sells it after ten years of ownership.
This is just one of the many offerings that we are finding in today's depressed real estate market, and that is why the large institutional investors are beginning to drift into the Tallahassee housing market.
Do You Want To Invest Like The "Big Guns?"
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Joe Manausa, MBA is a 26 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.