Real estate appraisal for rental properties isn't the same as for single family homes. If you were looking at a 24-unit building it would be difficult to sight similar ones nearby that have recently sold. Therefore a market analysis using comparable sales isn't normally used.
It is also not ideal to use replacement costs either. How do you figure replacement cost if there is no arrive for sale nearby with proper zoning? This is used as a secondary method though and can tell you if maybe you should be building instead of buying.
Investors buy rental properties for the income. Therefore it is the income that is used to determine value. The rate of return expected by investors in a given area gives you the capitalization evaluate and this is what you use to accurately evaluate an income property.
Start with the gross income. Subtract all expenses but not including loan payments. If a building's gross income is $82,000 per year and the expenses $30,000 you have a net before debt-service of $52,000. Now apply the capitalization rate to this figure.
If the common capitalization rate is.10 for example (ask a real estate agent) divide the income of $52,000 by.10 and you get $520,000. This is the value of the building. If the usual evaluate is.08 meaning investors in the area expect an 8% return the value would be $650,000.
Net income before debt-service divided by the "cap rate:" It really is a simple formula. The tough part getting accurate income figures. Is the seller showing you ALL the normal expenses and not exagerating income? If he stopped repairs for a year and is showing "projected" rents the income figure could be $15,000 too high. This would convey the building is worth $187,000 less (.08 cap evaluate) than your appraisal shows.
Another thing smart investors do when buying is to separate out income from vending machines and laundry machines. If these provide $6,000 of the income that would add $75,000 to the appraised value (.08 cap rate). Do the appraisal without this income included then add back the replacement cost of the machines (probably much less than $75,000).
Be careful when using any real estate appraisal method. No formula is perfect and all are only as good as the figures you plug into them. Used wisely though real estate appraisal using capitalization rates is one of the most accurate methods.
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Related article:
http://hilppwghafs.blogspot.com/2007/11/real-estate-appraisal-rental-properties.html
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