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. 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.
All calculations follow the numbers in the movie, refer there for any calculations.
Effective Rental Income (-3%) of $58,200
Total Operating Expenses are $20,800
Net Operating Income is $37,380 (58,200 - $20,820)
NOI is $37,380, minus the mortgage payments gives a positive cash flow of $2,328 per year for this example sale.
And just so you can compare the above value, if we had a higher income of $45,000 and the Cap Rate was lower, at 3.5%, the Value would be $1,285,714.
The lower the Cap Rate is, the more valuable that property tends to be, and with a higher Cap Rate you're usually looking at a higher risk on your investment, could be that the building needs work, there's deferred maintenance or even the neighbourhood it's in can affect the value.
In this example, it's great, we are making money, with a positive cash flow, and you also generate wealth by paying down the mortgage on the property and also the value of your property will increase as time passes.
** Some appraisal firms use maintenance costs of $500 per unit. A fixed percentage of 5 % is most commonly used.