Every investor must develop cost and value for his own investment area! It takes some time and effort, but it’s critical for estimating how much you can pay – and ultimately, whether you’ll end up with cash flow and profits! Tons of information about investment properties is handed out to potential buyers by selling agents and brokers, which don’t mean diddlysquat about bottom line results. In the business of profit making, you must focus on two important numbers. What will your customers pay for your product? And – what can you afford to pay (purchase price) to provide your product and still make a profit for yourself? You should not move forward (in my opinion) without the answers.

Determining the rents and values in order to build your gross rent multiplier chart comes from doing lots of grunt work. To learn rent values, pretend you’re a renter in search of housing. Call telephone numbers in the classified ads for different locations within your investment area. Drive out to see what $700 per month will buy you in a two-bedroom house or apartment. Do the same for $500, etc. Once you become familiar with different parts of your town, you’ll be able to read the prices in newspaper ads and have a pretty good idea about what the properties look like and how well they’re maintained.
Another important benefit that comes from actually checking out rentals and talking to people – you’ll begin to learn about locations where tenants at various rent levels choose to live. You’ll learn about the “hood” areas – and where the dopers hang out. Don’t let the age or condition of a property fool you here! Dopers will sometimes occupy newer buildings – and trashy properties can often be found in excellent rental locations. Many times, out of town owners will milk a property until it completely runs down.

PROPERTY VALUES ARE YOUR BUSINESS

It’s important to know what the majority of renters can afford to pay in your investment area. For example, in my town I rent many 2 bedroom, single bath, houses to young couples with a small child or two – also to seniors. Both these customers cannot afford rents over $750 per month. Knowing what my customers can afford helps dictate how I buy properties. Smart investors will study the marketplace in order to deliver the right product (affordable houses) to his customers. It’s important to remember - if my tenants can’t afford to pay for my houses – I can’t either! It would be very unwise to own a stable of houses renting for $900 per month if you lived in a town full of $750 renters. If the majority of renters in your area can easily afford your houses, it’s much easier to keep them occupied and profitable.
Learning about property values in your investment area can be accomplished much easier with the help of a knowledgeable agent or broker. Obviously, they don’t have time for teaching greenhorns and looky-loos. They need to earn commissions to buy groceries and beer for their babies. If you’re not quite ready to buy a property just yet, you’ll need to polish up on your acting and pretend you are, if you expect much help from agents.