Agent In Ottawa
  • Home
  • Search MLS Listings
  • Search Condos
  • Income Property
  • Neighbourhood Listings
  • My Homes Value
Login
613-786-2632

Sign in to your account

Need to reset your phone number?

Don't have an account with us?

Click here to sign up.

Quick Property Search

TO
Advanced Search

Address Search

How to appraise any Investment Property

If you want to know how to crunch the numbers and work out how much an investment property is worth then it is worth watching this video, updated July 2016. It shows you the calculations you can use to work out if any property is a good buy for you.

Newbies, as well as seasoned investors might find this interesting, and learn how to evaluate their own properties with this methodology. Below the movie are all the figures.


Now, here's some appraisal calculations with examples.

Gross Income

 

 Scheduled Rental Income (S.R.I.)  $100,000
 Less Vacancy and Bad Debt (V & BD) (4%)*  $4,000
 Effective Rental Income (E.R.I.)  $96,000
   

 Operating Expenses

 
 Management (5% of ERI) $4,800
 Maintenance (5% of ERI)**  $4,800
 Property Tax  $11,000
 Heat $5,000
 Hydro $3,000
Insurance $3,500
Water & Sewer $1,000
Landscaping & Snow Removal $1,000
Supplies $400
Total Operating Expenses (TOE) $34,500

Net Operating Income (NOI)

$96,000 - $34,500

$61,500

** Some appraisal firms use maintenance costs of $500 per unit. A fixed percentage of 5 % is most commonly used.

Investment Property Appraisal Methods:

How does one determine the value of an income producing residential property?

There are a number of methodologies that can be employed to determine value. Some of them are as follows:

1. Cap Rate. Comparing the "capitalization rate" of the subject property to those of other properties recently sold, in the immediate area. This creates a percentage return on investment from the perspective of the Buyer having paid for the property in cash, with no mortgage.

It is calculated by dividing: Net Operating Income x 100 divided by the selling price.
ie. $35,566 divided by $639,900 = 5.5 % cap rate

A lower cap rate (ie. 5.5%) reflects an expensive neighbourhood, low risk, and good long term capital appreciation (a blue chip stock analogy)

A higher cap rate reflects a higher risk. IE. a rooming house in a run down area may have good cash flow, but there are inherent problems with this type of property.

Conversely value or sale price is calculated by:

Sale Price = NOI x 100 divided by the Cap Rate.

2. Gross Income Multiplier.: Comparing the gross income generated by the subject property to that of other properties recently sold, in the immediate area, times a "multiplier". If similar buildings in the area have sold for an average of 12.4 times the ERI gross, then the value could be assumed to be $639,900.

ERI of $51,648 X 12.4 = $639,900

Use when the operating expenses are unknown or suspect. There are two G.I.M.’s:

A) Scheduled Rental Income Multiplier (SRIM) It ignores vacancy and bad debt allowance.

B) Effective Gross Income Multiplier (EGIM) It takes into account vacancy and bad debt allowances (deduct 4% from SRIM)

3. Net Income Multiplier: Comparing the net income generated by the subject property to that of other properties recently sold, in the immediate area, times a "multiplier". For example if a building nets $ 35,566 and similar buildings have sold for an average of 18.0 times the net, then the value could be assumed to be $639,900.

NOI of $35,566 X 18.0 = $639,900

4. Average Price per Apartment: If similar buildings to the subject property have sold for an average of $106,650 per apartment and there are 6 apartments in the building, then the value could be assumed to be $ 639,900.

5. Cost of Replacement Value: Separating the land value from the value of the building, how much would it cost to construct a new building on the site of the subject property. Is construction replacement value $85 per square foot or perhaps $125 per square foot?

6. Operating Expense Ratio: While this is not specifically a valuation method of an income producing property, it will tell you about the financial efficiency of your costs as compared to income.

The OER generally ranges between 25% to 45% and is affected by the age of the building and who pays for utilities.

OPERATING EXPENSE RATIO = TOTAL OPERATING EXPENSES (TOE) divided by the EFFECTIVE RENTAL INCOME (ERI)

IE:* TOE x 100 divided by ERI = $16,082 divided by $51,648 = 31.0 %

RETURN ON INVESTMENT CALCULATION - Example:
(Assume a five-plex building sold for $600,000 and the Buyer used a 25% down payment which is $150,000)

 INCOME

 
 ANNUAL RENTAL INCOME  $70,000
 LESS VACANCY & BAD DEBT (4%)  $2,800
 EFFECTIVE RENTAL INCOME  $67,200
 INCOME FROM PARKING  $2,600
 INCOME FROM LAUNDRY  $2,100
 TOTAL "OTHER" INCOME  $4,700

 GROSS OPERATING INCOME (GOI)

 $71,900

 EXPENSES

 
 MANAGEMENT (6%)  $4,200
PROPERTY TAX $7,000
INSURANCE $2,000
WATER/SEWER $800
HEAT $2,000
HYDRO $800
MAINTENANCE (5%) $3,500

TOTAL OPERATING EXPENSES (TOE)

$20,300

NET OPERATING INCOME = (GOI – TOE)

$51,600

LESS ANNUAL DEBT SERVICE (ADS)
(mortgage of principal and interest, assume $450,000 @ 5% amortized over 25 years)

$31,428

ANNUAL CASH FLOW

+$20,172

RETURN ON INVESTMENT ($20,172 divided by $150,000)

13.4%

Like or Share
Loading likes...

Address Search

Want New Multi Listings by email

Sign up and start to receive all of the new listings of Multi-Family Properties as soon as they hit the MLS

Sign Up for Income Property Listings!

Investor Reports

  • Introduction to Investing in Multi-Family Buildings
  • Appraisal for Your Income Property
  • How a Lawyer Helps the Investor when Buying
  • Listing Agents to Confirm Legal Apartments
  • Multi-Unit Offers and Mistakes to avoid
  • Multi-Unit offers, REALTORS Advice (part2)
  • Rental Increases Allowed Ontario 1987-Current
  • How To Calculate the Value of a Building
  • Mortgage Financing to Buy an Income Property
  • What if you buy a building with Illegal Units
  • Order a Compliance Report from City
  • Inspections to Expect when buying a Multi-Unit
  • Investors Seminar

Recent Multi-Family Articles Posts

  • Financials on 6 unit income property sold November
  • Financials from this sale of a 35 Unit Apt. Building near Ottawa
  • Financials, Vanier Triplex - Sold Sept. 2019
  • Two Sandy Hill Income Properties, sold recently
  • Tax Relief for Multi-Family Properties
  • Triplex in Ottawa South, Sold May 2019
  • 12 Unit Building Sold April 2019 in West Ottawa
  • Westboro 6 Unit Sold March 2019
  • The Woe's of a Toronto Investor!
  • Vanier 7 Unit Building V's Sandy Hill 20 Unit Property, Sold in January 2019

Find Homes by Community

  • Central Core
  • Barrhaven
  • West Ottawa
  • Kanata
  • Far West & Nepean
  • Orleans
  • East Ottawa
  • South Ottawa
  • See All Neighbourhoods

Search by Property Type

  • All Homes for Sale
  • All Condos for Sale
  • Income Properties
  • Waterfront
  • Luxury Homes
  • Bungalows
  • Commercial Property
  • Homes with Pools
  • See All Property Types

Real Estate Market - MLS Statistics

  • Ottawa Market
  • Barrhaven Market
  • Kanata Market
  • Orleans Market
  • Multi-Family Market
  • Stats by Neighbourhood

George Bradie and Patrick Walchuk

George Bradie & Patrick Walchuk

Salespeople

Contact an Agent

  • About
  • Contact
  • What Clients Say
  • Careers
  • Blog

Agent In OttawaRemax Hallmark Realty Broker
610 Bronson Ave., Ottawa ON K1S-4E6
Phone: 613-786-2632
Registered Users Phone 613-704-3301

RE/MAX Hallmark Realty Group, Broker
Content © Copyright AgentInOttawa.com
All Rights Reserved, Privacy Policy

Hours of Operation:
Monday - Friday 9AM - 9PM
Saturday & Sunday 9AM - 6PM

Ottawa Real Estate Resources

  • Buying
  • Selling
  • Investing
  • Relocating
  • Going to Uni.
  • Calculator
  • Lawyer Fees
  • Just Listed
  • Open Houses
IDX Real Estate Websites by
• Accessibility