Yesterday, myNOI explained the first step in using the Investment Property Valuation (IPV) Calculator. Investors explained what type of property they’re selling, and what they’d like to do with it. Today, we’ll cover Step 2 of the Investment Property Valuation Calculator, where investors will examine the money their properties generate.
Step 2:
The second step in the Investment Property Valuation Calculator is all about income! Here, you’ll discover how much Gross Income your property is bringing in. Gross Income is the total amount of money you are making, before deducting taxes and expenses.
It’s important to enter in as much data as you have on income, including individual tenant’s rent. The more information you can provide, the more in-depth analysis you’ll have of your property’s worth.
If you do not have the information readily available, or you have many, many tenants, you have the option to skip individual entries and enter the single lump sum of your building’s income.
Feel free to enter income number you most readily know. If you enter in your total monthly income, the IPV Calculator will automatically calculate your annual income. This also works in reverse if you enter your annual income first.
Property Income refers to “income received by virtue of owning property.” The three forms of property income are rent—received from the ownership of natural resources; interest—received by virtue of owning financial assets; and profit—received from the ownership of capital equipment.
The Property Square Footage is the amount of space your property takes up. A square foot is defined as the area of a square with sides of 1 foot in length.
Vacancy Rate can be tricky. The vacancy rate refers to “the percentage of all available units in a rental property, such as a hotel or apartment complex, that are vacant or unoccupied at a particular time.” For example, if you have a four unit apartment, and a tenant moves out of one unit, your vacancy rate is 25%.
For the IPV Calculator, we recommend entering in the average property’s vacancy rate in your market. This number can swing drastically in different directions based on your property type and location, so expect to do some research. If you’re unsure, contact a local commercial real estate broker. They will be happy to help you out!
When you’ve entered all the figures you can, hit “Go to next step” to continue valuing your property.
Come back tomorrow when we detail Step 3 of the Investment Property Valuation Calculator!