Home Buying in Bloomfield>Question Details

Greenhandbuy…, Home Buyer in New Jersey

How to know if it is right price for a house? They say 15 times annual rent but there's no single house for rent in the same area.

Asked by Greenhandbuyer, New Jersey Tue Oct 19, 2010

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GREAT QUESTION!

Truly the best way is to have YOUR REALTOR - LIKE ME help you with recent sold comparable properties that have sold and adjusting those based on items of value and items that detract from value.

GO MOBILE - visit http://gomobile.njpads.com and search for a specific home/rental or search near your current location - FULL MLS DETAILS!

Cordially,

John W. Davis Jr., VREP
RE/MAX Village Square - Upper Montclair

Direct:973-944-5038
Office: 973-509-2222 x174
Fax: (888) 225-8039

http://www.njpads.com


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1 vote Thank Flag Link Tue Oct 19, 2010
The trouble with this advice, below from this anonymous Buyer Beware, in California, is that waiting for some national marker is unrealistic. The area of Essex county NJ is the densest populated in the nation, there is no new housing, and as you have discovered, rentals of SF houses are rare. Waiiitng to buy until prices come down to you is maybe the most foolish advice anyone can give. Right up there with , wait until you make more money, or wait until interest rates drop further. If you can wait, you don;t need a housing. Never buy unless you must have a house, you want to buy and you can buy. Each area or local market is its own control. If you can't buy what you want in the Oakview section, you buy in the Watssessing section; that is if you must be in Bloomfield. The difference.... the schools if needed, the neighborhood and maybe the taxes. A close estimate of value is made from the recent (3-5 months sales) and match that to a rent multiplier if you like, but renting is not common here, as you seem to understand from your question. Obviously you are not watching for these answers, so why are we bothering? Good question.
0 votes Thank Flag Link Mon Apr 30, 2012
Except for Lyle, these brokers below are clueless, esp the ones who have never heard of this. It goes to show you how closed off professionals within certain industries can be. Clearly, they've been drinking too much of the Kool-Aid and not doing enough statistical research in their own field.

When you cannot find something available in an area that equates to the US long term historical mean, then that shows you the entire area is overpriced. The beauty of this average is that it takes into account all factors such as location, popularity, school districts, etc. because it uses same area rents as a compare.

Long story, short... wait to buy until we get to more realistic valuations if you must occupy your selected area. Because it's just a matter of time before these people lose their shirts without govt interference and manipulation of rates and home buyer credits.
0 votes Thank Flag Link Mon Apr 30, 2012
And old but Interesting question. A house renting for 2000 month would then sell for $360,000. 2000x12x15. Not a good way tp calculate value. Location, condition, quality features, updates and recent sales of similar are better ways. Any good realtor can help determine present value. The asking price should be close and in a slow market like today, the prices should be a little lower than the value to attract attention in a market with heavy inventory. The better the condition the better the present value due to financing options being somewhat restrictive. Needed work requires extra cash, no more double mortages to fix up. FHA 203 loans to fix up can work if buyer has little money to fix up. And work required deserves big discount from usual value for putting up with the risk of rehab and the trouble of dealing with the work process. Community prices are still high IMO, since median incomes do not come within 1/3 of median prices in BLM. Now that taxes are up, the prices should come down. The major BLM feature is transportation to NYC- 30 minutes or less. Call me.
Carl Witzig- Sales Agent
Weichert Realtors
Uopper Montclair- 973 746-1515 ext 216
0 votes Thank Flag Link Mon Apr 25, 2011
First look at the home "Assessed Value". (Pay Less)
Then look at the "Sale Date Histories". (you need to know "PREVIOUS" # of owners)
Request from Seller a CLUE Report. (Insurance info)
Requested Warantee info. (if any)
Request update info. in regard to repairs. (if any)
How much Tax/Listing Price/INS (you will pay per month): with ALL of the above history in mind....= worth.

Note: Always pay less, because the house is only worth as much as someone is willing to buy.
0 votes Thank Flag Link Wed Dec 1, 2010
What you are referencing is called the Gross Rent Multiplier (GRM)
The GRM is a capitalization method for figuring the rough value of a property.
Value = Potential Annual Gross Income X Gross Rent Multiplier

GRM's can vary considerably depending on the location: Trenton is lower than Hoboken. It also needs to reflect interest rates because a property might be profitable at 14 times rent when interest rates are low, but lose money at 8 times rent when interest rates are expensive . The old investor “rule of thumb” was to never buy a property with a GRM greater than 8. It is best to use the GRM as a guide in comparing different rental investment properties in the same area.

You should also look at the Capitalization Rate or “Cap Rate” which is another ratio used to estimate the value of income producing properties. The cap rate is the net operating income divided by the sales price or value of a property expressed as a percentage. For example, if a building is purchased for a $500,000 sale price and it produces $40,000 in positive net operating income (the amount left over after the fixed costs and variable costs are subtracted from gross lease income during one year), then: $40,000 / $500,000 = 0.08 = 8%. The Cap Rate is then 8%. Use both of these ratios in comparing investment properties.

Also, do not put too much stake in Zillow's Zestimates here in New Jersey. Zillow uses sold data and tax data base information to calculate their Zestimates for a specific property. New Jersey's Property Tax data does not include number of bedrooms, baths and garage information on a property as do the tax databases in many other states.
0 votes Thank Flag Link Sun Oct 24, 2010
I have never, in my 30 years as a Broker, heard of any such formula. John Davis Jr. gave you the right advice. Look at similar properties and compare yours to them to estimate price. Zestimates on Zillow are an approximation, but the best way is to call a Realtor for a Free home evaluation. John seems to be in your area. Give him a call.
0 votes Thank Flag Link Fri Oct 22, 2010
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