Real Estate Formulas

Residential Real Estate Formulas

Residential Formulas basically make use of comparative listings in MLS or other on-line computer web sites.
As well they use CMA's(Comparative Market Analysis).

CMA's include the following factors:

1. Area and Property Type
2. Number of Living Units
3. Number of Rooms and above Ground Sq. Ft.
4. Total Sq. Ft.
5. No of Bedrooms/Baths/Half-Baths
6. Year Built
7. Basement Information
8. Garage and Parking Information
9. Street Type and Lot Size
10. Features of Home
11. Overall Condition and Required Repairs
12. Total Rental Income
13. Asking Price
14. Sale Price and Date of Sale incl Year
15. Why is Home Better or Worse
16. How Offered
17. Fair Market Value
18. Why is Home being Sold and Terms

In addition condos need:

19. Number of Levels
20. Management Type
21. Association Fee

Commercial Real Estate Formulas

Commercial Formulas (Multi Family units of 5 and above) make use of cash flow formulas:

Gross Scheduled Income(GSI) also
Potential Gross Income

Add up all the possible rent from the property.

Gross Operating Income (GOI) also
Effective Gross Income(EGI)

Gross Operating Income(GOI) = Gross Scheduled Income(GSI) - Vacancy and Credit Loss

Property Operating Expenses

Property Operating Expenses include:

1. Accounting Expenses
2. Advertising Expense
3. Insurance Expenses
4. Janitorial Service (including Rug cleaning)
5. Lawn and Snow Plowing Expenses
6. Licences
7. Miscellaneous Expenses
8. Property Management Fees
9. Repairs and Maintenance
10. Resident Management
11. Taxes (Real Estate, Personal Property, Payroll)
12. Trash Removal Expenses
13. Utilities (incl electricity, fuel oil, gas, sewer and
water, telephone, cable, other)

Net Operating Income (NOI)

Net Operating Income(NOI) = Gross Operating Income(GOI) - Property Operating Expenses

Capitalization Rate(Cap Rate)

Two ways of looking at the data:

Capitalization Rate(Cap Rate) = Net Operating Income(NOI) / Asking Price of Property(Value)

Asking Price of Property(Value) = Net Operating Income(NOI) / Known Area Capitalization Rate(Cap Rate)

Debt Coverage Ratio(DCR)

Debt Coverage Ratio(DCR) = Net Operating Income(Annual)(NOI) / Annual Debt Service(loan payments)

Cash Flow before Taxes

Cash Flow before Taxes = Net Operating Income(NOI)
+ Loan Proceeds
+ Interest Earned
- Debt Service(loan payments)
- Capital Improvements

Cash on Cash Return

Cash on Cash Return = Net Cash Flow(NOI - Debt Services)
Divided by Total Acquisition Costs

For Commercial Real Estate
Apartment Property and Investment
Inspections

Need to be made

Property Inspection - Get into every unit

Investment Inspection Factors

1. Access - Ease of access to property
Curb cuts and drive lanes, where, how many,
legal entrances/exits, turning restrictions


2. Demographics - Ecomomic and physical makeup of community
Number of families, earning power, growth
trends, areas of concentration


3. Traffic count - Dept of transportation recent traffic
count, older reports, long term plans


4. Traffic Flow - Flow and Patterns, which way, what
times, physical and visual access


5. School districts - look at adjoining districts, look at
stats for districts


6. Plats - Recorded and approved drawing of a tract of
land, could be a sub-division or a single parcel
Includes legal description, property
dimensions, roadways, easements, pond, canal,
lake, restrictions, max sq ft buildings,
use of buildings
Also review Master Plan and surveys provided


7. Amenities -
a) Transportation - bus route, subway stop, shopping in
walking distance
b) Infastructure in city - good highways and roads,
bridges, adequate for daily volume and their
condition


c) Local shopping


d) Parking - 1 space per tenant, space for 2nd car and
visitors; 2 spaces required for most condo conversions


8. Deferred Maintenance - when last done and what


9. Tenant Profile - cater to tenants, upgrade profile,
look at cars and trucks in parking lot
over 10 years refers to blue collar;
see music, avg tenant age, children,
singles


10. Friends with tenants - How long have lived there
How they get along
Management response to requests
Problems in unit
Plumbing, electric issues
Water leaks
Tenants doing drugs
What is rent paid
Rent increases in last year


11. Neighboring Properties - What are they like
Are they residential apartments
Do they compete, their type
How do these units compare
Other apts sizes, amenities
Are offices, office parks near


12. Hazards to avoid - Were hazardous materials ever stored nearby
Is ground water contaminated?
Are mini-storage units nearby?
Are there underground oil or gas tanks?
Is there a gas station nearby?
Is asbestos around pipes?


Leaded Paint - get certificates for
leaded paint cleanup


Toxic Mold -certified mold inspection,
stop moisture source


Water Source - is lead in water? test yearly

Property Grading

A - Upper economic areas, high end properties,
path of city progress


B - Blue collar workers live in area, incl
bowling alley. movie rental stores, pizza shops
working class, government subsidized incl section 8


C - Restaurants, strip malls in need of repair,
unoccupied business, city does not promote A and B


D - Need of repair, businesses with bars on windows
Gas station with bullet proof glass, metal
drawer for money, high vacancy rates, cars in
need of repair