March 25, 2020
Residential Care Home for the Elderly 686 Minert Rd—Investment Property Analysis
Centrally located, the Residential Care Home for the Elderly at 686 Minert Road in Walnut Creek is close to the Crossroad Shopping Center, the Countrywood Shopping Center, a large neighborhood park, and family style restaurants. Also nearby are Kaiser Walnut Creek and John Muir Hospital.
The Care Home for the Elderly at 686 Minert Road is a great place to live as it has 5 rooms for residents, a shared room plus one staff room, 4 private rooms, a spacious backyard with a pond, a separate dining room, fruit trees, and a picnic area. This ensures great potential to generate revenue from the property through rentals.
| PRICE |
$1150,000 |
| PRICE PER SQ FT |
$639 |
| CAP RATE |
20% |
| PROPERTY TYPE |
Health Care |
| SUB-TYPE |
Assisted Living |
| NOI |
$237,727 |
| YEARLY MORTGAGE PAYMENT |
$79,740 |
| CASH-ON-CASH RETURN |
6.71% |
| DEBT COVERAGE |
2.91 |
| DOWN PAYMENT |
$190000 (20%) |
| IRR |
41.5% |
Analysis
From the numbers above, we can work out if there is long-term value to invest in the Residential Care Home for the Elderly at 686 Minert Road.
Price per Square Ft
The price per square foot of 686 Minert Rd is $639. It is important to note here that price for the property is $950,000 and an additional $200,000 is to be paid for the business. Assuming that you pay for both, your price per square ft. is calculated by dividing the total sum paid for the property ($1150, 000) by the total square foot of the property (1800).
The median list price per square foot in Walnut Creek is $500. This means that, at $639, 686 Minert Rd is not the best investment in terms of pricing.
NOI
The Net operating income calculated for 686 Minert Rd. was $237,727, which is 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 686 Minert Rd. was 20%. This is considered to be a high cap rate which means that 686 Minert Rd. is located in a neighborhood which is considered to be high-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 686 Minert Rd. was 6.71%. This means that you will get you money back or the down payment you made for the property in almost 15 years. Getting back your money in 15 years is 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 686 Minert Rd. was 2.91. 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 686 Minert Rd. has an extremely good DCR. This ratio is important because it is the first thing that the lender will look at when they evaluate 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 686 Minert Rd. was 41.5%. The gross return was calculated at 6.426%. This is based on an investment period of 8 years and a consistent cash flow of $152,988. The initial investment (the down payment made) was also considered for the IRR. An IRR of 41.5% means that you would earn $73,904 in net profits over eight 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.