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جاري تحميل ... Arabic Investor - المستثمر العربي

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How to Make Your Rental Properties a Cash Cow!

 

•	net operating income •	cash flow •	real estate market •	required rate of return •	cash cow •	discounted cash flow •	money pit •	net present value •	several reasons •	income approach •	rental property


Introduction:

 

Some individuals feel that producing a valuation is unnecessary if a certified appraisal has been completed. However, an investor's valuation may differ from an appraiser's for several reasons.
The investor may have different opinions about the property's ability to attract tenants or the lease rates that tenants are willing to pay. As a prospective purchaser or seller, the investor may feel that the property has more or less risk than the appraiser.
Appraisers conduct separate assessments of value. They include the cost to replace the property, a comparison of recent and comparable transactions and an income approach. Some of these methods commonly lag the market, underestimating value during uptrends, and overvaluing assets in a downtrend.
Finding opportunities in the real estate market involves finding properties that have been incorrectly valued by the market. This often means managing a property to a level that surpasses market expectations. A valuation should provide one's estimate of the true income-producing potential of a property.
 

The income approach to evaluating real estate is similar to the process for valuing stocks, bonds, or any other income-generating investment. Most analysts use the discounted cash flow method to determine an asset's net present value.

 

Highlights

Ø  Some individuals feel that producing a valuation is unnecessary if a certified appraisal has been completed
Ø  Valuing real estate using discounted cash flow or capitalization methods is similar to valuing stocks or bonds
Ø  The only difference is that cash flows are derived from leasing space as opposed to selling products and services
Ø  An investor's valuation may differ from an appraiser's for several reasons
Ø  Properties are valued by discounting net cash flow or the cash available to owners after all expenses have been deducted from leasing income

Ø  If the assessed value is in line with the market and the required rate of return offers an adequate return for the risk involved, the owner may decide to hold the investment until there is a disequilibrium between the valuation and market value

•	net operating income •	cash flow •	real estate market •	required rate of return •	cash cow •	discounted cash flow •	money pit •	net present value •	several reasons •	income approach •	rental property


Summary

·        Some individuals feel that producing a valuation is unnecessary if a certified appraisal has been completed.
·        Valuing real estate using discounted cash flow or capitalization methods is similar to valuing stocks or bonds.
·        The only difference is that cash flows are derived from leasing space as opposed to selling products and services.
·        NPV is the property value in today's dollars that will achieve the investor's risk-adjusted return.
·        The NPV is determined by discounting the periodic cash flow available to owners by the investor's required rate of return (RROR).
·        Since the RROR is an investor's required rate of return for the risks involved, the value derived is a risk-adjusted value for that individual investor.
·        By comparing this value to market prices, an investor is able to make a buy, hold, or sell decision.
·        Properties are valued by discounting net cash flow or the cash available to owners after all expenses have been deducted from leasing income.
·        Valuing a property involves estimating all the rental revenues and deducting all expenses required to execute and maintain those leases.
·        Tenants usually pay their portion of the increase in expenses for the period after they move into the property.
·        In triple-net leases, the tenant pays a pro-rata share of all property expenses.
·        The following are the types of expenses that have to be considered when preparing an income valuation: Leasing costs
·        The capitalization rate for determining the reversion value of the property in year 10 is estimated at 10%.
·        This capitalization rate equals K-g, where K is the investor's RROR and is the expected growth in income.
·        The value of the property in year is derived by taking the estimated NOI for year and dividing it by the capitalization rate.
·        Figure 2 provides a basic format that can be used to value any income-producing or rental property.
·        Investors purchasing residential real estate as rental property should prepare valuations to determine whether rental rates being charged are adequate enough to support the purchase price of the property.
·        If the assessed value is in line with the market and the RROR offers an adequate return for the risk involved, the owner may decide to hold the investment until there is a disequilibrium between the valuation and market value.

·        After gaining some rudimentary knowledge about local market standards, lease structures and how income and expenses work in different property types, one should be able to forecast future cash flows.

Results

The valuation assumes a property that creates an annual rental income of $100,000 in year one, which grows by 4% annually and 3% after year 10.


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