If you are looking for Real Estate Owned (REO) by a lending institution, we recommend working with our Brevard County real estate experts who know the specifics when it comes to the finding right deal and filing the right paperwork. If you are an Investor working with an inexperienced realtor, then you may not end up with a successful transaction. Our Brevard County Real Estate Agents work one on one with our clients and utilize their extensive knowledge of the distressed property market to ensure your real estate transaction is successful. Our team specializes in Short Sales, HAFA Short Sales, Streamlined Cooperative Short Sales, Bank Owned Property, REOs, Pre-Foreclosures and other Distressed Properties.
Income Producing Properties
There are several rule of thumb methods to arrive at the estimated value of an income producing property. They include:
- Gross Income Multiplier. Gross income multiplier is calculated as:
Purchase price / gross rental income
In Mr. Smith`s example from the previous chapter, the gross income multiplier is:
$219,000 / $23,600 = 9.28
A duplex in the similar neighborhood may be valued at “8 times annual gross.” Thus, if its annual gross rental income amounts to $23,600, the value would be taken as $188,800 (8 x $23,600). Warning: This approach should be used with caution. Different properties have different operating expenses which must be taken into account in determining the value of a property.
- Net Income Multiplier. Net income multiplier is calculated as: Purchase price/net operating income (NOI)
In Mr. Smith`s example, the net income multiplier is:
$219,000 / $18,618 = 11.76
- Capitalization rate. Capitalization rate is almost the same as the net income multiplier, only used more often. It is the reciprocal of the net income multiplier. That is:
Net operating income (NOI) / purchase price
Let us go back to Mr. Smith`s example. The duplex`s capitalization rate is $18,618 / $219,000 = 8.5%. Whether it is over priced or not depends on the rate of the similar type property derived from the market place. Suppose the market rate is 10%. That means the fair market value of the similar duplex is $18,618 / 10% = $186,180. Mr. Smith may be overpaying for this property.
The above example provided by: http://creativecommons.org/licenses/by-sa/3.0/
Positive Cash Flow IS the name of the game! Buy right, choose quality tenants and know how to manage and train them effectively.
By owning income-producing properties such as, houses, apartment buildings, strip centers, self-storage units, warehouses, mobile home parks and others, you can truly build wealth in real estate and create a positive cash flow. There are many factors that play a significant role in increasing your net worth such as appreciation and several tax benefits. When you work with our Brevard County real estate professionals, Team SouthStar, you can find the perfect property location to contribute to your business success.
In an IRS regulated “1031 exchange” or “like kind exchange”, an asset, usually real estate, is sold and the earnings are then reinvested in a “like kind” asset. Under IRC Section 1031 an owner of business or investment property may exchange that property for other like-kind property within a statutorily mandated period of time, and defer current recognition of gain on the sale of the old property. A Qualified Intermediary (QI) is usually used to transition the proceeds of the sale into the closing of the newly obtained “like-kind” asset. The QI holds the proceeds from the sale of the relinquished property in a trust or escrow account in order to ensure the taxpayer never has actual or constructive receipt of the sale proceeds.