Investment opportunities are routinely analyzed in search of improvement and expansion of our portfolio. Every single day we receive multiple listing reports from various sources of single family homes in our targeted locations. After sifting through the numbers on thousands of properties over the years, our company has developed a good gauge on the profit structure of large single-family homes managed specifically for young professionals.
As each new house for sale hits the radar, we filter through all the available investments and crunch the numbers to test the profit potential of the properties. We only seriously look into the top 10% of possible investments. Of those 10%, an even smaller fraction is worth putting an offer on. Management compensation aside, we require a 10% return on capital, which may be adjusted higher if we feel an added level of risk is being assumed.
If the intrinsic value based on our required capitalization rate is lower than the purchase cost, or within 5%, which gives us enough wiggle room for negotiation, and an aggregate cost of capital below 7% can be achieved, we have every reason to move forward and write an offer and fill the house with top notch roommates.