Pricing of Units for sale based on the Income Capitalization Rate (CAP) comparisons.
Annual Income:
Gross Scheduled Income (GSI): ———————————————-
-Vacancy (5%): ———————————————-
= Effective Rental Income: ———————————————-
+ Other Income: ———————————————-
Gross Operating Income (GSI): ———————————————-
Annual Operating Expenses:
New Property Taxes: ———————————————–
+ Insurance: ———————————————-
+Maintenance and Repair: ———————————————–
+ Utilities (Water, Trash, and Yard): ———————————————–
+ Any other Expenses: ———————————————–
Total Annual Operating Expenses: ———————————————–
Net Operating Income (NOI):
Gross Operating Income: ———————————————–
-Annual Operating Expenses: ———————————————–
= Net Operating Expenses (NOI): ———————————————–
Annual Debt Service:
Principal and Interest (Mortgage Payment): ———————————————–
Annual Cash Flow:
Net Operating Income: ———————————————–
-Annual Debt Service: ———————————————–
= Cash Flow before Tax: ———————————————–
To commonly used method of determining the value of an investment property is the Income Capitalization or CAP Rate method.
Capitalization Rate (CAP Rate):
The CAP Rate is the ratio (expressed as a percentage) between purchase price and the first year Net Operating Income (NOI) of the property.
Net Operating Income (NOI) = Purchase Price x CAP Rate.
Gross Rent Multiplier: Has only value with NNN.
First year: GSI x GRM = Investment Value of Property (Purchase Price)
Note: Any cost paid by tenants should not be included as owner/landlord expenses.
If units have their own gas, water and electrical meters it is the tenants cost.
