FAQ
Frequently asked questions by beginner analysts, a good way to get started on the site.
Professional Advice for the Irish Market
What does BTR stand for?
BTR stands for Build to Rent. Sometimes referred to as Multifamily by our American counterparts or the Private Rental Sector (PRS) in the U.K.
So what is it exactly?
BTR is specific type of residential asset class developed in the purpose of accommodating private tenants and their long-term needs/wants while delivering good quality yields to its landlord. As with any real estate development, every project is looked at on a scheme by scheme basis and may focus on different aspects of core BTR qualities.
How is the BTR appraisal different than that of a typical residential appraisal?
Because BTR is developed for longer term results, with a more hands on management strategy, the appraiser needs to look at both aspects of property development and investment. Instead of washing your hands after build completion, one must then focus on building a semi-styled hospitality appraisal that focuses heavily on income and management expenditure.
Is there a one size that fits all BTR appraisal format?
Unfortunately for us analysts, no. Every model needs to be built with whomever it is being created for in mind. Appraisals can range from simple back of the napkin numbers to overly complex Monte Carlo simulations, it is important to know your audience in this regard. Depending on your company structure your appraisal may go through multiple versions or variations depending on what stage of the acquisition process you may be in.
Am I free to use online comparables in terms of rental values?
Comparables, generally being one of the most basic form of due diligence in residential appraisals, are not that straight-forward in BTR. What is important here, geography not included, is to know your client and their product.
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- Do they offer generous amenity space?
- Is the product of a high-quality finish?
- What additional services are on offer that are different than that of a traditional rental block?
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These factors among others greatly influence rental income streams, think about them before you pick up the phone to a local agent or head straight to daft/myhome.ie.
How do I calculate management costs?
Some management costs will be directly correlated to your rental income/ services provided/ finish. Other costs can be flatter such as RTB registrations, Local Property Tax, Insurance, etc. In my experience most clients will write off management costs as a flat % of income, this is widely accepted in the industry for now it seems. I cover management costs in detail in my appraisals which you will see.
What about construction costs?
Construction costs are one of the more difficult things to source by yourself in a development appraisal and are very site/ project specific. Some factors include ground conditions, access, spec, is the site central or suburban? I would highly advise speaking to a Quantity Surveyor or someone else more construction orientated in this regard. If you are just doing an initial appraisal or don’t have any access to any of these professionals, then there are some published documents you can refer from resources such as CIF, Turner & Townsend and/or Linesight, who occasionally visit this topic.
I have just about finished everything but how to a I calculate a terminal value for my project?
Your end value will be determined by a yield (sometimes referred to as cap rate) dived into your NOI in the terminal year. If you are lucky enough to have a direct comparable on a neighbouring project, then fantastic but more than likely you will have to reach out to your contacts or agents in the market on this one.
All done, I just need to sort out tax, where do I find that?
If you are an analyst at a company, you will know how to do this better than I. If you are an originator don't attempt post project tax calculations as more than likely you will not know the company's tax structure/position.
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It is important to note that there are project taxes in Ireland that are unavoidable for Irish BTR appraisals and they are VAT and Stamp Duty. Both are time sensitive and can change the financial viability of a project depending on inputs. This is particularly the case with VAT on construction/sales, I have decided to omit VAT from appraisals as with BTR only being in its infantile state in Ireland, a lot of advice received was contradictory, best to check with your own tax expert on current rules.