Jeannie Niles Real Estate Investment
 |
Cap Rate Analysis
INCOME PROPERTY NOW SELLING AS INCOME PROPERTY
Huh? Didn’t income property always sell for income? NO!!!
In the heyday of real estate from 2002 through 2007 multi-family (income) properties were mostly being purchased for “future appreciation”. The values have now reverted back to investing for income earned on your investment.
Cap Rate is the best tool for determining the value of an income property. Cap rate is calculated as “Net Operating Income” divided by the value of the property.
Another way to look at it is “How much return do I expect on my capital investment”? A 6 to 8% cap rate is mostly the norm in the current market. To ascertain what you will pay for the property, take the “Net Operating Income” and divide by the percentage return you expect and that will be your valuation.
Income Property Analysis Example
| Gross Scheduled Income | $100,000 | (Annual is always used) |
| Vacancy Factor | 5,000 | (5%) |
| Gross Operating Income | 95,000 | |
| Expenses: | ||
| Property Management | 9,500 | 10% of gross rents collected |
| Insurance | 4.000 | |
| Property Taxes | 11,000 | |
| House Utilities: | ||
| Water, Trash, and Exterior | 3,500 | |
| Electric | ||
| Cleaning | 1,000 | |
| Gardener | 3,600 | |
| Repair and Maintenance | 8,000 | |
| Total Expenses | 40,600 | (40.6% of GSI) |
| Net Operating Income | 54,400 |
The above is a modified Income/Expense Sheet that most of my clients find easy to understand. Each investor should select a format he or she prefers.
Valuations:
6 Cap rate creates a value of 906,667.
7 Cap rate creates a value of 777,143.
8 Cap rate creates a value of 680,000.
-
Income property has once again become “Income property”.
-
There are many small income properties available in the area. Prices here have declined over 50% since the peak of the market late 2005/early 2007.
-
It’s possible to obtain some great apartment financing. 25% down payment and interest rates at 6% or slightly below.
-
Cap Rate is an investment tool for analysis that enables an investor to compare one investment to another.
-
Cap Rate is the best tool for determining the value of an income property.
-
Some of the most outrageous episodes in property ownership that the owners lived to tell about.
-
Only 5% sales agents or brokers actually own investment property, and only 10% actually sell a property.
Every investor's situation is unique, and I have over 25 years experience solving problems. Use the form below to ask me about your unique needs.
Jeannie Niles Real Estate Investment
P.O. Box 317
Palm Desert, CA 92261
P: (760) 360-4020
F: (760) 340-9069
E: jniles@realestate-investment.com
