Once you've calculated CAP and GRM, you can figure out what you're actual annual cash flow (or ROI) will be. If you'd like to see a chart that breaks all this down, email or call me and I'll send it to you.
What you are asking is relative to your specific situation both in terms of investment goals, tax situation, etc. The ultimate answer, would be to get a return as high as possible. This is often challenging given that San Francisco has rent control which limits the rental increases a landlord can give a tenant if that specific property is under rent control.
Ideally this would be a discussion between your tax accountant and your agent to find out what would work best for you.
Rich Bennett, Realtor in SF since 2002
Zephyr Real Estate
Feel free to call me at 415-200-7202.
If you need detailed analysis, feel free to give me call.
Oggi Kashi - 415.690.3792 direct
Broker Associate, Paragon Real Estate Group CA DRE 01844627
All data from sources deemed reliable but subject to errors and omissions, and not warranted.
Please check out my website at http://www.sfpropertysearch.com to search for these properties, or feel free to contact me and I can send you a list of current great investment opportunities in the city.
For instance if a property's rents totaled $10,000 per month ($120,000/year) and it is listed for $1.6M the gross rent multiplier (GRM) is 13.33. The GRM is a basic comparison tool that is used in marketing investment property because as you, the investor looks at properties you will pass on anything that has too high a GRM. Obviously you won't want to pay twenty times rent if the market says 15 is the areas market factor.
As you work through scenarios with your agent you will delve into more formulas that will show the gross operating income and the Capitalization rate. But for the answer to this question you'd need to just look at the actual gross rents (not the pro-forma) rents in various neighborhoods to see what the market has established as value for those properties.
Barbagelata Real Estate