1) Income Value from Rents
This is my favorite way to calculate the value of my personal properties. In six easy steps I’ll show you how to quickly calculate the value of a property.
- Determine your required rate of return / what percentage you want to make.
- Calculate the net income of the property.
- Calculate the expenses of the property.
- Note: Since a buyer may require a mortgage and interest rates fluxuate every day the cap rate does not account mortgage payments or purchase costs.
- Calculate the cap rate: Cap Rate Equals the Annual Net Operating Income divided by Cost (or Value) Cap Rate = Net Income / Cost (or Value)
- Understand Cap rate so if you are a buyer you know what to offer and if you are a seller you know where to