methodolgy behind our estimates
A portion of Barnett & Hill's business is dedicated to property management and single-family rental property identification. Part of this task depends on econometric modeling using historical information provided by NTREIS - the North Texas Real Estate Information Service. NTREIS data is the information that powers real estate agency websites, is crawled by websites like Zillow or Trulia, and is at the core of our valuations.
When estimating our projections for rent:
- we perform an OLS regression estimated from NTREIS's historical rental information . At the outset, we experimented with a variety of models, but simplicity ruled out and, in the end, our most predictive model explained rent as a function of age, square feet, and the elementary school associated with the address.
- The parameters estimated from the regression are embedded in each search you perform. If the house is located in Abilene, under 3,000 sf and below $250,000 in listing price, the results of your search employ the parameters of this model to offer a prediction of rent. Our objective was to found homes that either made sense as rentals or, due to a move, might end up as rentals - it becomes absurd to estimate rent for a 3,500 sqf house marketed at $375,000 - this is not a rental.
When estimating months to pay-off:
- This predicted rent is then used to calculate the number of months it would take to pay off each active listing based on the list price.
- This pay-off is quick-and dirty; it is based solely on revenue with no estimation for expenses and allows for no negotiation on price. Still, it provides a rough metric of comparison between properties. It's akin the rubric of "60 times the monthly rent" used by one of the real estate investors in our office - in other words, rentals that pay off in 5 years deserve a hard second look.
- When visiting with repeat customers, months to pay-off provides us with one more metric to identify rentals for investors. When we learn that you were a "113 months to pay-off" buyer on your last deal, we can point you to similar deals going forward.
When estimating the capitalization rate:
- the annual revenue is based on our calculation of potential rent..
- to allow for vacancies, we adjust rent by a fraction of the year the house may sit vacant. This estimate is based on data our monthly rental report published in the Abilene Reporter-News and on this site.
- maintenance fees for things like plumbing repairs and make-ready expenses are factored at 1% of the property's value
- Insurance is estimated at $1/sf
- Taxes are based on Abilene city taxes, County taxes and school taxes are estimated based on location within Abilene's boundaries. The total city, county and school tax is devised using current list price as the tax basis. It is likely that this number will, ultimately, be a compromise between sold price and current tax roll values, but as Taylor CAD has access to sold price if reported by the listing agent, we are making a worst-case assumption with our estimation.
- Homeowner and assocation fees are included as an annual expense.
- Barnett & Hill charges a 10% management fee. 10% of the potenital annual rent, adjusted for vacancies, is used to calculate the management feel.
It is important to note that we do not profess to know the condition of these properties. This is a blind first pass based on the things that determine rent: age, sqft, and location proxied by elementary school. As you utilize these estimates, let us know what you think of their value to your search. Barnett & Hill prides itself in being data-driven, but recognizes there is art to the science of data that makes outcomes relevant