Investor Approaches to Analysis

I am repeatedly asked by clients and developers to help determine the ROI for various types of real estate investments. Please note the following simplified list of approaches.
  • Sales Comparison Approach
  • Gross Rent Multiplier Approach
  • Direct Capitalization Approach
  • Cash on Cash Approach
  • Demographic/Trends Approach

The following approaches take into account the Time Value of Money (TVM), so you can compare real estate investment with other investment types

  • IRR (Internal Rate of Return)
  • Net Present Value (NPV)
  • Capital Accumulation

Please call me to learn about or further understand how to make use of these approaches as you make investment decisions.

Commonly Used Investor Terms:

Net Operating Income (NOI) = Income – Expenses. The income projected from a property after deducting losses from vacancy, collection and operating expenses.

Capitalization Rate = NOI/Purchase Price

Cash Return on Investment = NOI/Down Payment

Triple Net Lease or Net Net Net Lease (Commercial): A lease requiring the tenant to pay all operating and other expenses. Including costs incurred in maintaining the property, and fees for insurances, utilities and repairs.

Gross Lease (Commercial): The tenant pays a fixed rent and the landlord pays taxes, insurance, repairs and utilities and operating expenses and the like related to the property.

Percentage Lease (Commercial): Rent is based on a fixed price plus a percentage of gross income received by the tenant doing business.

Common Tax Deductions for Owner Occupied and Investment Property:

Owner Occupied:
Mortgage Interest
City Real Estate Taxes
Loan Origination Fees
Loan Discount Points
Loan Prepayment penalties

Investment Property:
The NOI loss on a rental property up to 25K. (At certain income levels, writing off this loss must be deferred until you sell)
Depreciation on Residential Property – 27.5 years; Commercial – 39 years

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