When assessing the value of an investment property, various methods can be employed:
Cap Rate Comparison
Assess the capitalization rate of the subject property against recently sold properties in the vicinity.
Gross Income Multiplier (GIM)
Compare the gross income of the property with that of similar recently sold properties, multiplied by a factor.
Example: If the property generates $60,000 gross income and similar properties sell for 10 times the gross, the value could be approximated at $600,000.
Net Income Multiplier (NIM)
Evaluate the net income of the property against similar properties’ net incomes, multiplied by a factor.
Example: If the property’s net income is $50,000 and similar properties sell for 12 times the net, the value could be estimated at $600,000.
Average Price per Apartment
Determine value based on the average price per apartment in similar buildings.
Example: If similar buildings have sold for $80,000 per apartment and there are 10 apartments, the value could be assumed to be $800,000.
Return on Investment (ROI)
Determine value based on the average price per apartment in similar buildings.
Example: If similar buildings have sold for $80,000 per apartment and there are 10 apartments, the value could be assumed to be $800,000.
Cost of Replacement Value
Assess the cost of constructing a new building on the property, factoring in construction costs per square foot.
Considerations for Accurate Valuation
Method Accuracy:
Each method provides a different perspective on value. Employing multiple methods can offer a more comprehensive valuation.
Building Type Impact:
Evaluate differences between conventional (purpose-built) and unconventional (modified) buildings. Despite similar profit and loss statements, their values may differ.
Legal Compliance:
Legal issues, such as an illegal apartment, can affect value. Consider potential legal implications on property value.
Regulatory Compliance:
Compliance with fire safety regulations, such as possessing a Fire Marshal Retrofit Letter, can impact value. Ensure the property meets all necessary safety standards.
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