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Real Estate Appraisal - Rental Properties
Real estate appraisal for rental properties isn't the same as for single family homes. If you were looking at a 24-unit building, it would be difficult to find similar ones nearby that have recently sold. Therefore, a market analysis using comparable sales isn't normally used. It is also not ideal to use replacement costs either. How do you figure replacement cost if there is no land for sale nearby with proper zoning? This is used as a secondary method, though, and can tell you if maybe you should be building instead of buying. Real Estate Appraisal Using Capitalization Investors buy rental properties for the income. Therefore it is the income that is used to determine value. The rate of return expected by investors in a given area gives you the capitalization rate, and this is what you use to accurately appraise an income property. Start with the gross income. Subtract all expenses, but not including loan payments. If a building's gross income is $82,000 per year, and the expenses $30,000, you have a net before debt-service of $52,000. Now apply the capitalization rate to this figure. If the common capitalization rate is .10, for example (ask a real estate agent), divide the income of $52,000 by .10, and you get $520,000. This is the value of the building. If the usual rate is .08, meaning investors in the area expect an 8% return, the value would be $650,000. Easy Real Estate Appraisal? Net income before debt-service, divided by the "cap rate:" It really is a simple formula. The tough part getting accurate income figures. Is the seller showing you ALL the normal expenses, and not exagerating income? If he stopped repairs for a year, and is showing "projected" rents, the income figure could be $15,000 too high. This would mean the building is worth $187,000 less (.08 cap rate) than your appraisal shows. Another thing smart investors do when buying, is to separate out income from vending machines and laundry machines. If these provide $6,000 of the income, that would add $75,000 to the appraised value (.08 cap rate). Do the appraisal without this income included, then add back the replacement cost of the machines (probably much less than $75,000). Be careful when using any real estate appraisal method. No formula is perfect, and all are only as good as the figures you plug into them. Used wisely, though, real estate appraisal using capitalization rates is one of the most accurate methods. Steve Gillman has invested real estate for years. To learn more, and to see a photo of a beautiful house he and his wife bought for $17,500, visit http://www.HousesUnderFiftyThousand.com
MORE RESOURCES: Prologis Warns of Slowing Industrial Real-Estate Market The Wall Street Journal Former HGTV star from Los Gatos sentenced in $10M real estate fraud case CBS San Francisco Office market collapse: Commercial foreclosures spike 117% in a year Business Insider 'It was surprising.' Metro Detroit man caught up in real estate scam; here's how to protect yourself WXYZ 7 Action News Detroit 21 Largest Real Estate Companies in the World Yahoo Finance Big Tech Is Downsizing Workspace in Another Blow to Office Real Estate The Wall Street Journal Real Estate Briefs | April 19 | News, Sports, Jobs Cape Coral Breeze Banks' Commercial Real Estate Risks Are Uneven Federal Reserve Bank of Kansas City Inked: Recent LI real estate deals Long Island Business News TikTok’s Origin Story: Court Files Show Role of GOP Megadonor Jeff Yass The New York Times Blackstone Earnings Rise as Investment Giant Projects Commercial Real Estate Recovery - CoStar Group Motley Fool: Investors could trust real estate The Spokesman Review Real Estate Minute – 04-18-2024 KFDX - Texomashomepage.com Real Estate Balance Announces Chair CoStar Group Real Estate Transactions: April 19, 2024 The Recorder Real Estate: Q1 2024 - Coronado Real Estate Market Update Coronado Times Newspaper Southeastern Wisconsin industrial real estate market softens in Q1 BizTimes Milwaukee Inside PROFILEconnect 'A Night at The Museum' Real Estate Impact Conference at the Coral Gables Museum PROFILE Miami Google's Strategic Job Cuts Reflect Ongoing Cost-Cutting Measures, Affecting Real Estate and Finance Departments Yahoo Finance Bronx real estate sales drop across the board, though spring market may be more active: report – Bronx Times Bronx Times Legacy Hills neighborhood in Celina wins award at DBJ Best Real Estate Deals - Dallas Business Journal The Business Journals Jefferson at the Grove apartments among DFW's Best Real Estate Deals - Dallas Business Journal The Business Journals 'A Man in Full,' starring Jeff Daniels as an Atlanta real estate mogul, dropping May 2 FOX 5 Atlanta Inside Savannah Homes: $6.475M Historic Monterey Square home Savannah Morning News S.F. housing market: Still very few homes, selling even faster San Francisco Chronicle Mike Wyatt honored with Lifetime Achievement Award for brokerage career, community support - Dallas Business Journal The Business Journals Tom Thumb southern Dallas named one of Dallas' Best Real Estate Deals - Dallas The Business Journals Will It Be a Pricier Housing Market in Spring 2024? Norada Real Estate Investments Mixing real estate & renewable energy to help build greener world NoCamels - Israeli Innovation News Blackstone Real Estate Earnings up 15% in First Quarter The Real Deal EquityMultiple Bullish on Industrial Real Estate Sector, Brings Opportunity to Individual Investors Newswire Why you might not need a real-estate agent when buying a home Business Insider WHO?! This Southern Utah Town Is A Real Estate Hot Spot! Cat Country 107.3 and 94.9 AI in real estate discussed during virtual forum Westfair Online The Real Estate Top Performers share tips for buying or selling a house in today's market! WUSA9.com Documentary shows roots of segregation were planted in Chicago Tribune High Country Real Estate: First Quarter 2024 High Country Press Real estate mogul concerned how Americans will deal with squatters: ‘Something really bad is going to happen’ Fox Business Millennials Are Coming for Your Golf Communities The Wall Street Journal Boise Real Estate Market Steady Amidst California's All-Time Low KIDO Talk Radio Celebrity real estate agent Mauricio Umansky explains when housing prices will come down Fox Business ‘It doesn’t smell right.’ Michigan councilman linked to $69,000 marijuana real estate sale MLive.com A new real estate trend? Shopping malls converted into residential units in South Florida NBC 6 South Florida China home prices slumped in March as property crisis drags on Business Insider Will Hilton Head real estate pricing rules change this summer? Here’s what’s in play Hilton Head Island Packet Fannie Mae, Freddie Mac clarify real estate commission rules National Mortgage News REAL ESTATE | The Lofts at Cedar Lake include access to a 245-acre wooded campus washingtoncountyinsider.com Tiny California home the size of a hotel room will sell for 'considerably' more than its $1.7M asking price New York Post Real estate: Buyer’s agents’ role in today’s real estate market Main Street Media of Tennessee Retirees: Is it time to downsize, even in this real estate market? Effingham Daily News Arizona Coyotes owner cares more about real estate than hockey The Arizona Republic |
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