cash flow: Sensitivity Analysis a Tool for Real Estate Agents
- 08/15/12 12:44 PM
Sensitivity Analysis plays an important part in the selling and buying decisions of multifamily or apartment transactions. What is sensitivity analysis? It is an analysis that involves changing one value to see how “sensitive” the results of an investment are affected by that change. What would happen if rents in your market increase by 10% or the operating expenses increased by 5%?
The most important approach to using a sensitivity analysis is OFAT, changing one-factor-at-a-time. To be effective, you can only change one value at a time and analyze the results. Then reset that value and change another value to … (1 comments)
cash flow: What to Watch for in Net Operating Income
- 08/08/12 12:03 AM
How is the Net Operating Income or NOI calculated? Why is this income so important in rental property analysis? What to watch for when interpreting the NOI? Rental property analysis is made up of various ratios, margins and value comparisons. One of the most important is the annual income from the operation of the property. The income we are discussing is the property's income after subtracting out annually all vacancy and credit loss minus all operating expenses. NOI = Gross Potential Income (maximum income) - Vacancy & Credit Loss - Operating Expenses Let us stop our discussion for a little side … (2 comments)
cash flow: How to Use the Net Income Multiplier
- 08/01/12 11:22 AM
Want a quick and easy estimate of the value of an apartment or multifamily property? A value you can easily solve using pencil and paper? A value that can tell you what other investors are paying for a property in relation to each dollar spent per Net Operating Income or NOI dollars. How about a value that can be used when comparing similar apartments?
The Net Income Multiplier or NIM can be quickly calculated when you know the Capitalization Rate. For those who enjoy math, NIM or Multiplier is just the reverse or reciprocal of the Cap Rate. The formula … (2 comments)
cash flow: Why Investors and Lenders Need the Break-Even Ratio
- 07/30/12 11:13 AM
Why should you be concerned about the break-even ratio of an income producing property? If you know that the cash flow coming in meets or exceeds the cash flow going out, what else should you know? Ratios, percentages and math, are they really necessary? Which answer would you give; yes and no? If your answer was no, then I can make some assumptions about your investing strategies. Debt was not attached to the property when purchased, you paid all cash. Vacancy rates are not a concern; all your tenants are long-time tenants who pay in full and on time. Your operating … (0 comments)
cash flow: Importance of Operating Expenses and Operating Expense Ratios
- 07/29/12 06:41 AM
Any type of expense is something you pay for. If you paid for it, then is it an operating expense? Just because you paid for something is not necessarily an operating expense. An operating expense is an item that will ensure that the property will continue to produce income. Examples of these expenses are; property taxes, utilities, supplies, property management fees, the cost of repairs and maintenance, snow & trash removal, advertising, accounting or legal fees, lawn care and insurance. Expenses in the operation of an income property are not; mortgage or loan payments, tax depreciation, capital additions or improvements and … (0 comments)
cash flow: Cap Rate or Capitalization Rate - What Is It?
- 07/17/12 09:25 AM
Cap Rate The Cap Rate or Capitalization Rate is term that is heard quite often in regards to income properties. In this article the income property I will be referring to will be an apartment building. What is a Cap Rate? What is a good Cap Rate? How do you calculate a Cap Rate? And basically, why is the Cap Rate so important? A simple definition of a Cap Rate would be a number, specifically a percentage that gives an estimate of the value of an apartment. It sounds like all you need to know, would be the Cap Rate. And … (5 comments)
cash flow: The Importance of the Gross Rent Multiplier - GRM
- 07/17/12 09:20 AM
The Gross Rental Multiplier (GRM), Multiplier for short, is easy to calculate, but what value does it hold? In the world of investment properties you will see it stated in advertising, pro forma statements, broker’s listings and online property sites. The standard definition of a Multiplier is a ratio that is used to estimate the value of income producing properties. And its formula is: Multiplier = Market Value or Price / Maximum Income or Gross Scheduled Income (GSI) A very simple formula, price divided by income. With a little arithmetic, the formula can be rearranged to solve for the market value … (4 comments)
Sensitivity Analysis plays an important part in the selling and buying decisions of multifamily or apartment transactions. What is sensitivity analysis? It is an analysis that involves changing one value to see how “sensitive” the results of an investment are affected by that change. What would happen if rents in your market increase by 10% or the operating expenses increased by 5%?
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