With the latest quarterly sales report ( CLICK HERE ), owners of residential rental properties in Northern Colorado can ascertain a few things:
- Very few properties have sold
- Prices continue to rise due to persistent demand
- Today’s sellers are realizing the advantage of selling with little to no competition
- Property values have accelerated between 2015 and 2018 but slowed recently
What are the drivers that distinguish a property that is worth $100,000 per unit versus a property that is worth $200,000 per unit? Mainly it comes down to income. The biggest driver of income is the number of bedrooms.
A one bedroom unit might rent for $850 per month in Loveland producing $10,000 a year in income, while having $3,500 per year in expenses. This leaves a net operating income of $6,500. Apply a 6.0% capitalization rate (I know, cap rates can range from the high 4’s to the high 6’s today) and you get $108,000.
Using the same math for a two bedroom unit in Loveland: $1,100 per month rent, $13,000 income, $3,750 expenses gives you $9,250 NOI. With that same 6.0% cap rate you get a $150,000 in value. To reach $200,000 in value for your units, you would need to be in the ballpark of $1,300 per month in average rent.
Are you there? Want to find out if your property could sell for a stronger cap rate? Are there areas you can improve on the income side or the expense side to improve your NOI?