You presume that, if buyers have recently been paying X times the gross income for properties in a certain location, then the market value of a property you are considering for purchase should work out to that same “X times” its gross income.

The gross scheduled income (sometimes called potential gross income) is the annual income of a property if all rentable space were, in fact, rented and all rent collected. In short, it is the maximum potential income without regard to any possible vacancy or credit losses.

Net income multiplier (NIM) is the reciprocal of the capitalization rate. As with cap rate, you use this to express the relationship between a property’s value and its net operating income (NOI) for the current or coming year. NIM represents the amount that a typical investor would pay for each dollar of NOI.

You purchase a piece of property for $100,000 in an area where property values have grown at 8% annually. If they continue to grow at that rate, about how long will it take for the property to double in value? Number of Years to Double in Value (approximate) = 72 / Rate of Growth Number of Years to Double in Value (approximate) = 72 / 8 Number of

The downside to the capitalization rate, however, is the same as with most of the others we’ve considered so far. It looks at the property at a point in time (usually the current year) without regard to the property’s expected performance over your entire holding period. It can certainly be useful to look at a single point in time—what’s a

Your expense percentages may not tell you very much in an isolated example, but they might shed a good deal of light if you could compare them to some reasonable expectations.

Vacancy and credit loss is the potential rental income that is lost due to space that lies unoccupied or due to nonpayment of rent by tenants. You’ll use vacancy and credit loss to reduce the gross scheduled income (i.e., the property’s total potential income) to give you the gross operating income (GOI), which is the amount of revenue you actually

Capital additions are additions having a useful life of more than one year or improvements that are likely to prolong the life of the property. A capital addition is different from a repair, which maintains rather than increases the life of a property.

Most lenders require a debt coverage ratio of at least 1.20 in order to finance an income property, and since the Great Recession, 1.25 or higher is not uncommon. This ratio is not going to tell you if you’ll meet your own investment goals with this property, but it will tell the lender if you are likely to be able to meet the mortgage payments.