Investment Property Values
Commercial Lease and Tenant Representation
Investment Real Estate
1031 Tax Deferred Exchange
Determining the Value of Investment Property
Land Acquisition and Sales
There are two commonly used methods in determining the value of investment property.
Gross Rent Multiplier (GRM) Method
Gross Scheduled Income x Gross Rent Multiplier = Investment value of property
Example: Suppose an investors GRM requirement is 8. (This means the investor will pay no more than 8 times the gross scheduled rent to purchase an investment property.) The property in consideration has an estimated Gross Scheduled Income of $24,000. The investment value of the property is:
$24,000 x 8 = $192,000
Capitalization Rate (Cap Rate) Method
Investors use this method to measure investment performance.
Net Operating Income (NOI) / Purchase Price = Cap Rate
Example: Investment property selling for $200,000 with an estimated first year NOI of $20,000 would have a capitalization rate of 10%.
$20,000 / $200,000 = 10%
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