Valuation of Income Properties

Investit Software Inc.

Real Estate Investment, Buy vs. Lease, Lease & Development Analysis Software www.investitpro.com 1-877-878-1828 Email: Investit@investit.ca

THE VALUATION OF INCOME PROPERTIES USA

1. INTRODUCTION 2. APPRAISING INCOME PRODUCING REAL ESTATE Principle of Substitution Future Benefits Concepts of Change, Regression, and Progression Competition and Profit Land Residual Recent Conformity Similarity 3. THE THREE APPROACHES TO APPRAISAL 1. Cost Approach 2. Market Data or Comparable Approach 3. The Income Approach 4. INCOME AND EXPENSE STATEMENTS 5. TRADITIONAL FINANCIAL MEASURES Potential Gross Income Multiplier (PGIM Effective Gross Income Multiplier (EGIM) Net Income Multiplier (NIM) Capitalization Rate (Cap Rate) Relationship between the Cap Rate and the Net Income Multiplier Using the Financial Measures Finding Gross and Net Income Multipliers and Cap Rates Advantages and disadvantages of the Gross and Net Income Multipliers, and the Cap Rate Financial Measures which take into account the impact of Financing Financing Criteria Loan to Value Ratio Debt Service Ratio (or Debt Coverage Ratio) 6. MORE FINANCIAL TOOLS FOR ANALYSING REAL ESTATE INVESTMENTS Cost per Unit Cost per Square Foot Rents per Square Foot per Month Operating Expense Ratio (OER) 7. FINANCIAL STATEMENTS Financial Statements Unaudited Financial Statements Verifying the Financial Statements 8. THE DIFFICULTIES OF FINDING AND USING CAP RATES Finding Cap Rates Problems associated with Cap Rates 9. DETERMINING THE VALUE OF MIXED USE BUILDINGS 1 1 1 1 2 2 2 2 2 2 3 3 3 3 4 7 8 9 10 10 11 11 12 13 14 15 16 17 18 18 18 19 19 20 20 21 22 23 23 24 30

Copyright © Neil Osborne 2008. All rights reserved

1. INTRODUCTION The major objective of real estate investors is to maximize their wealth, while balancing the investment risks. In deciding whether to buy or dispose of a property, investors use a wide variety of analytical approaches, ranging from relatively simple techniques, to...