Real Estate Math - Do you know these simple formulas?

How much property do you need to know math if you invest in property? There are computers and calculators for calculating interest-free loans or depreciation. What you need is a couple of simple formulas to determine whether a property is a good investment or not.

Real Estate Math is not necessary,

The gross rent multiplier is a formula that is not necessary. I mention this because people sometimes, and there are better waysConsideration. Gross rent multiplier is a crude way to set a value for a property. It was decided that real estate valued at 10 times the annual rent or less, for example, and simply multiply the gross annual rent a building collects by ten to get your value.

Real Estate Math - Do you know these simple formulas?

There are obvious problems with this formula. You must constantly change to reflect the interest, because a property that can be rented for 12 times, if interest rates are low profitable, but a money loser at eight times the rentThe financing is expensive. In addition, there are only different costs for different properties, particularly when some utility for the rent, for example, belong. Gross rent does not say much about the factor that makes a property valuable: the net income.

Real Estate Math You Need

rental properties are bought for their income, this is what your valuation is based on. This is why your real estate listing mathematics education needs to start withusing a capitalization rate or "maximum" to determine. A cap is the rate of return investors expect in a given area, or yield of a property at a specified price.

An example may clarify this. Take your gross income from a property and subtract all expenses, but not the payments of the loan. If the gross income of $ 76,000 per year and the cost is $ 32,000, which have a net income before debt service of $ 44,000. Well, for an assessment of the value of coming to Simply the capitalization rate to this value.

If the normal capitalization is 0.10 (ask a professional what is normal in your area), which means investors expect a yield of 10% of the value of their investment, would be the net income of $ 44,000 share of 0, 10. You will receive $ 440,000 - the estimated value of the building. If the joint is 0.08, meaning investors expect only a return of 8%, the value would be $ 550,000.

Simple Real Estate> Mathematics

Estimated value of income net of debt service, divided by the first cap - this is really simple mathematical property, but the difficult part is to get accurate economic data. If the seller shows you all the normal costs and gains are not exaggerated? If he stopped repairing things for a year, and displays "projected" rents, instead of actual rents collected, the figure of income could be $ 15,000 too high. This means that you could estimate the value of $ 187,000more (0.08 maximum).

In addition to checking the numbers, smart investors sometimes separate income from vending machines and washing machines. Suppose these sources provide $ 6,000 of income. This will add $ 75,000 for the estimated value (0.08 maximum). Instead, you can include the assessment without this income, add back the replacement cost of the machines (probably much less than $ 75,000).

No real estate formula is perfect and everyone is just as good as the six charactersthe inclusion in it. used with caution but with rates of property valuation of the CAP is the most accurate method for estimating the value of real estate income. To set a value in a single family home, you need a different approach. Yes, that means more homes to learn math, but the fact that for another time.

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