Docstoc

Property Valuation (PowerPoint download)

Document Sample
Property Valuation (PowerPoint download) Powered By Docstoc
					     Property
     Valuation
Dr. Arthur C. Nelson, FAICP
       February 2010
          Overview
• Market Comparison Approach
• Cost Approach
• Income Approach
• Rules of Thumb
• Ratio Analysis
Market Comparison Approach

You want to buy a 10 unit apartment.
    How much should you pay?
          Cost Approach
• Cost to replace or reproduce
  – Variety of methods to estimate
• - Depreciation
  – Physical deterioration
  – Functional obsolescence
  – Economic obsolescence
• + Land value
    Income Approach


      V = I/R
V = Value
I = Net Operating Income, NOI
R = Capitalization Rate
               Steps
  Potential Gross Income (PGI)
- Vacancy, Bad Debt Allowance (VBD)
+ Miscellaneous Income (MI)
  Effective Gross Income (EGI)
- Operating Expenses (OE)
  Net Operating Income (NOI)
÷ Capitalization Rate (R, or Cap Rate)
= Market Value
     Example Application
PGI                       $ 80,640
VBD                       - 4,032
MI                        + 1,000
EGI                       $ 77,608
OE                        - 29,100
NOI                       $ 48,508
R @ 0.0971 (or 9.71) =    $499,500
R @ 0.1075 (or 10.75) =   $451,200
       Rules of Thumb
     Overall Capitalization Rate
             R = NOI/V
        Net Income Multiplier
            NIM = V/NOI
       Gross Income Multiplier
       GIM = V/PGI or V/EGI
Equity Dividend Rate, “Cash on Cash”
        EDR = BTCF / Equity
Before Tax Cash Flow
       Cash on Cash

Purchase Price      $500,000
Equity @ 30%        $150,000
BTCF                $ 4,273
EDR, Cash on Cash       2.85%
   Ratio Analysis
  Loan to Value Ratio
Mortgage Amt / Value, or
Mort. Outstanding / Value
  Debt Coverage Ratio
      DCR = NOI/DS
       Default Ratio
 DR = (OE + DS) / EGI
Operating Expense Ratio
     OER = OE / EGI

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:4
posted:2/10/2012
language:English
pages:15