Calculating Value of Investment Property

There are several ways to calculate Cash Flow, Rate of Return, and Cap Rate.  In Commercial real estate, we look at different factors such as Internal Rate of Return, Discount Cash Flow models, and other stuff that calculates the profitability of investments.  Most pitch real estate on a Cap Rate.  I use Cap Rates all the time, but it's not the sole decisive computation for me or my clients.  There is way more involved.

When looking at investment property on a commercial level, I like to draw out a running 10 year plan and I use estimates for inflation, vacancy, recurring or increasing operating expenses, and increases to rental rates.  I'd like to think that if I buy a stable asset now at 8% Cap Rate, I can achieve double digits by the time a few years rolls around.  Adding value can be done in many areas of real estate.

If you like investing in multi-family property, I suggest you get a small book from the bookstore that will discuss Net Present Value, Internal Rate of Return, etc.. You will not only know how to make smarter decisions but you'll feel more intelligent

The following link will bring you to a google doc that will show how we calculate values.  Sorry if the spreadsheet seems crammed but I'll try to make some adjustments to it, but for now you get the picture. 

VALUE CALCULATION