Posted by Chyna on September 03, 2004 at 17:44:00:

It depends on the market. When I first started buying in Williamsburg (Brooklyn, NYC), 10 times annual rent roll was pretty standard. Becuase of skyrocketing appreciation, now it’s possible to get 12 times rent roll, sometimes more.

Question on determining value - Posted by Trevor (OR)

Posted by Trevor (OR) on September 01, 2004 at 14:59:23:

I have a seller of a rental property that determines the asking price by multiplying the total monthly rents by 100. So if total rents are $1700/month, his asking price is $170,000. It seems too high to me. Is this an accurate and fair way to determine the value of an income property. The property hardly breaks even at this price.

Re: Question on determining value - Posted by Michael Ross

Posted by Michael Ross on September 03, 2004 at 24:16:19:

Trevor,

Thanks for asking.

Another rule of thumb formula is:

Take the rent as a weekly figure, halve it, then multiply it by 1000.

E.g. If a place rents for $1,000 a month, it is roughly $250 a week.

Halve this to get $125.

Multiply it by 1000 to get $125,000.

If the price is close to asking price, you might be able to make positive cash flow and the property is worth looking at more closely. If it is nowhere near it, move along to find another property.

Re: Question on determining value - Posted by Mark-Chgo

Posted by Mark-Chgo on September 01, 2004 at 19:21:08:

It may depend on the size of the property. For smaller properties, comparables may be the best determining factor. For larger income properties, we usually use the CAP rate, which takes into consideration both income and expenses.

Net Operating Income (excluding the mortgage) divided by Cap Rate (which can be anywhere between .05 and .12 or higher, depending on location and condition of property) = Market Value

Some people use the measuring stick that the selling price should not be greater than 1% of gross monthly rent (same as multiplying by 100). However, to truly value an income-producing property, you want to base it on INCOME - not Rent. Take annual Net Operating Income times 10 and that gives you fair value.

Looking at gross rent is only 1/2 of the equation. For example, using your example we have 2 places with rents of $1700 a month. Apartment #1 has expenses of $800 and Apartment #2 has expenses of $1200. That gives place #1 income of $900 and place #2 income of $400. I know which one I would pay more for.

Re: Question on determining value - Posted by NJ_Investor

Posted by NJ_Investor on September 01, 2004 at 15:16:26:

I never heard of that formula…One that I have, is to take the YEARLY rent total and multiply by 10. The asking price is NOT to be over the sum you determined. Hope that helps.