The following examples illustrate how to use the real estate formulas.
Example No 2.
Potential Gross Income: $244,800
Vacancy & Bad Debt Allowance: 5.0%
Operating Expenses $49,300
Mortgage Payment (P+i) $147,500
Number of Suites 24
Total Rentable Area 18,720 Square feet
Note: All figures are annual
Calculate the Market Value using the following financial measures
Effective Gross Income Multiplier (EGIM): 9.30
Net Income Multiplier (NIM): 12.50
Capitalization Rate (Cap Rate): 8.00%
Return on Equity (ROE): 5.57%
Consider a property with expected future net cash flows of $25,000 per year for the next five years (starting one year from now). After that, the operating cash flow should step up 20 percent, to $30,000, for the following five years. If you expect to sell the property 10 years from now for a price 10 times the net cashflow at that time, what is the value of the property if the required return is 12%.