2701-2723 Alum Rock Ave—Investment Property Analysis

An 8 unit apartment complex, 2701-2723 Alum Rock Ave has more than 9000 square feet of rentable space. Located at Alum Rock Avenue in San Jose, California, 2701-2723Alum Rock Ave offers a great opportunity to generate revenue through rentals. Below are some key figures showing the long-term feasibility of 2701-2723.

Analysis

From the numbers above, we can work out if there is long-term value in investing in the 2701-2723 Alum Rock Ave.

Price Per Square Foot

The price per square foot of 2701-2723 Alum Rock Ave is $799. The median list price per square foot in San Jose is $610. This means that, at $799, 2701-2723 is not the best investment in terms of pricing.

NOI

The Net operating income calculated for 2701-2723 was $261,343. This was calculated by subtracting operating expenses from the gross income earned from the property. Calculating NOI was important because it was needed to determine the cap rate of the property which is a significant property investment attribute.

Cap Rate

This was calculated by dividing the NOI by the sales price. The cap rate calculated for 215 Lennon was 3.56%. This is considered to be a low cap rate which means that 2701-2723 is located in a neighborhood which is considered to be low-risk for property investment purposes.

Cash-on-Cash Return

This was calculated by dividing the cash flow by the down payment made for mortgaging the property. The COC calculated for 2701-2723 was 5.5%. This means that you will get you money back or the down payment you made for the property in 18.2 years. Getting back your money in 18 years in not ideal. However, it is not bad either.

Debt Coverage Ratio (DCR)

This was calculated by dividing the NOI by the annual mortgage payments. The DCR calculated for 2701-2723 was 3.27. Since a DCR of 1.4-1.5 or upward is said to be ideal and what property investors should aim for, we can say that 2701-2723 has an extremely good DCR. This ratio is important because it is the first thing that the lender will look at when evaluating your financing application for the property. The lower the DCR of a property, the higher the down payment the applicant will be asked to put down.

Internal Rate of Return (IRR)

The IRR calculated for 2701-2723 was 41.8%. The gross return was calculated at 4.238%. This is based on an investment period of 19 years and a consistent cash flow of $80,647. The initial investment (the down payment made) was also considered for the IRR. An IRR of 41.8% means that you would earn $62, 293 in net profits over nineteen years. This is a very healthy net profit. However, a high net profit generally carries a certain level of risk so you may want to consider this before going through with the investment.

Building Classification

2701-2723 is classified as a C-class building. This means that you may need to perform renovations and upgrade the property to be able to get the desired rental income from it. Without, the upgrades, you may only be able to attract low-to-middle income tenants.