Real Estate Appraisal - Rental Properties

Real estate appraisal for rental properties isn't the same as for single family homes. If you were looking at a 24-unit building, it would be difficult to find similar ones nearby that have recently sold. Therefore, a market analysis using comparable sales isn't normally used.

It is also not ideal to use replacement costs either. 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 Appraisal Using Capitalization

Investors buy rental properties for the income. Therefore it is the income that is used to determine value. The rate of return expected by investors in a given area gives you the capitalization rate, and this is what you use to accurately appraise an income property.

Start with the gross income. Subtract all expenses, but not including loan payments. 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. Now apply the capitalization rate to this figure.

If the common capitalization rate is .10, for example (ask a real estate agent), divide the income of $52,000 by .10, and you get $520,000. This is the value of the building. If the usual rate is .08, meaning investors in the area expect an 8% return, the value would be $650,000.

Easy Real Estate Appraisal?

Net income before debt-service, divided by the "cap rate:" It really is a simple formula. The tough part getting accurate income figures. Is the seller showing you ALL the normal expenses, and not exagerating income? If he stopped repairs for a year, and is showing "projected" rents, the income figure could be $15,000 too high. This would mean the building is worth $187,000 less (.08 cap rate) than your appraisal shows.

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

Be careful when using any real estate appraisal method. No formula is perfect, and all are only as good as the figures you plug into them. Used wisely, though, real estate appraisal using capitalization rates is one of the most accurate methods.

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

---

Reinventing Real Estate, Part 2: Online and Empowered Consumers Are Taking Charge and Paying Less

Demanding consumers"Internet buyers tend to be better informed on market... Read More

Apartment Loan 101

So you're interested in going into business as a property... Read More

Real Estate Tax Incentives

Lower Your TaxesTax incentives for real estate investors can often... Read More

What to Look Out For When Buying Off Plan

Buying Off PlanIt can be difficult to decide when every... Read More

Hey Landlord! Is Your Lease Legal?

The longer you are a landlord the more you strive... Read More

Ten Creative Financing Techniques

Do all the creative financing techniques you hear about really... Read More

Title Insurance ? Examples of Problems and Advice

What is title insurance and why should any buyer get... Read More

Apres-Ski

European tax haven Andorra enjoys the same fiscal benefits as... Read More

Why Not To Invest In Bulgarian Property

According to research carried out by the Thomson Group, owning... Read More

Real Estate Investment - Why it is Big Business?

When examining the different asset classes, real estate is generally... Read More

Feel At Home Faster After You Move

Moving to a new community can be a great adventure,... Read More

Do You Need to Download a Landlord Inventory On-Line Today?

Do you need to download a Landlord Inventory on-line now?... Read More

Dead Deals and Recycled Reports

Everyone knows that at the end of a home inspection,... Read More

The Irish Property Market - Expensive But Worth It?

Lying on the edge of Europe facing out to the... Read More

Home Buying ? School District Issues

A good school district is a key factor in home... Read More

NAR® Broker Will Swear It ? Real Pro? Agents Share It ? FSBO Truth

For posting the "Truth" on your website, some FSBO's will... Read More

New or Old House?

A lot of buyers think that a new house is... Read More

How Does Interest Rates Affect New Home Sales and Wheres The Best Place To Build?

These real questions on new home starts and interest rates... Read More

5 Factors of Selling a Home

There are five major factors to consider when selling a... Read More

Real Estate: Buyers Agent, Sellers Agent & Dual Agent (defined and explained)

There is a relatively new and not always well understood... Read More

The Real Estate Agent Alphabet

Alphabet Letters after a person's name seem to bestow some... Read More

Staging Homes for Top-Dollar Sales

Wouldn't it be nice to have Roger Hazard's design team... Read More

Buy FHA HUD Homes

FHA HUD homes are those dwellings that have been acquired... Read More

Real Estate Website Marketing - 5 Steps to Crushing Your Competition and Doubling Your Business

Getting your real estate website more traffic is easy if... Read More

The Cat in the Attic

Strange and unexpected things happen during home inspections. Seldom are... Read More

Why is Now the Time to Buy in Turkey?

Turkey is a paradise of sun, sea, mountains, and lakes... Read More

Bulgarian Property Market Insight

GOLF GRABS BULGARIA!At the present time there are only three... Read More

Prepare Your House for a Successful Sale

Whether you list with an agent or sell on your... Read More

Investing in Real Estate & REITs

Real estate investing runs the gamut in terms of risk... Read More

Real Estate Development Marketing

A Specialist Article For Those Interested In Real Estate Development... Read More

What Should I Do If My Home Isnt Selling?

Suppose you've been trying to sell your home for months.... Read More

Investing in Real Estate Vehicle for Wealth Building

Real estate is one of the best vehicles of building... Read More

Closing Costs When Buying A Home

Closing costs are often the last thing a person thinks... Read More