Buying existing ventures (Real Estate Appraisal) puts people in business

Buying existing ventures puts people in business
Las Vegas Review Journal – better bet than a company whose seller is bailing out because he couldn’t make enough money. Insist on an appraisal. hotel delays its star turn More Las Vegas homes head to auction block Midyear real-estate

Homes Of the Billionaires (Real Estate Appraisal)

Homes Of the Billionaires
Forbes – in the spring and ebbs in the fall and winter, trophy properties usually come off the market toward the end of the year. “Activity takes off in December and January for trophy properties,” says Jonathan Miller, president of real estate appraisal firm

In slow market, sale prices are falling short of true value
Detroit Free Press – Generally, appraisers perform their valuations for lenders to help determine whether the collateral — the real estate securing the mortgage — is adequate. The prospective buyers typically receive a copy of the appraisal but sellers do not. If it

High Office Vacancy Rates Keep Suburban Market Slow
Business Ledger – Kunkel of Kunkel and Associates, Inc., in Lisle, a real estate appraisal, investment and consulting firm. My sense is that the office market is overbuilt right now. While current buildings may be faced with higher vacancy rates, the market is

Real Estate (Real Estate Appraisal) Valuation

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Real estate valuation for single family homes is typically done by using comparable sales. With income properties this just doesn’t work well. Imagine if you are looking at a 24-unit building. It would be difficult to find similar ones nearby that have recently sold.

It’s also not ideal to use replacement costs for income property appraisal. 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 Valuation By Cap Rate

Income properties are bought for the income. Income, then, is what is used to determine value. The rate of return investors in a given area expect gives you the capitalization rate, or “cap rate” for the area. This is what you use to accurately appraise an income property. Below is a somewhat simplified explanation.

The process begins with the gross income of a property. You then subtract all expenses, but not loan payments. For example, 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. You then apply the capitalization rate to this figure.

Suppose the acceptable cap rate in the area is .10, for example (ask a real estate agent), meaning investors expect a return of 10% on the value of the property. You simply divide the income of $52,000 by .10. $520,000, then, is the indicated value of the building. Suppose the usual rate is .08, meaning investors in the area expect an 8% return. Then the value would be $650,000.

Easy Real Estate Valuation?

Take net income before debt-service, and divide by the “cap rate:” It’s a simple formula. However, the tough part is getting accurate income figures. Did the seller show you ALL the normal expenses? Did he and exagerate the income? Suppose he stopped repairs for a year, and also showed you the “projected” rents. In that case, the income figure could be $15,000 too high. The building would be worth $187,000 less (.08 cap rate) than your appraisal shows.

One thing smart investors do when buying, is to separate out income from vending machines and laundry machines. If these provided $6,000 of the income, that income would add $75,000 to the appraised value (.08 cap rate). Instead, do the appraisal without this income included, then add back the replacement cost of the machines (probably much less than $75,000) to arrive at a valuation.

Of course, you should be careful with any real estate appraisal method. There is no perfect appraisal method, and all are only as good as the figures you plug into them. If used wisely, though, appraisal by capitalization rates is one of the most accurate methods of real estate valuation.

About the Author

Steve Gillman has invested in real estate for years. To learn more, get a free real estate investing course, and see a photo of a beautiful house he and his wife bought for $17,500, visit http://www.HousesUnderFiftyThousand.com

Press Release (Real Estate Appraisal) Tips and Template

Press Release Tips and Template
PRWeb – New Real Estate Value Search System Search appraisal market values for homes, townhomes and condos through a first of its kind automated Las Vegas real estate fair market value database. – 2005-12-21 N. Providence, Rhode Island Man Publishes Book