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.