The real estate industry has indeed gone through a huge evolution over the ages, and hence the way things are operated nowadays is completely different from how it used to be even a decade ago. Even the valuation of the entire industry has changed, whenever any of the property is used to generate income either from renting or leasing, it is the method of appraisal that is commonly used. However, the net income that is generated by the property is basically used in conjunction to some of the factors which have a deep impact on the value of that particular property in the current market price.
However, Sammy Zherka, who has been in building value real estate for years now, has finally shamed one of the most popular misconceptions that prevailed. Most people are of the thought that it is just the investors who make the most of the net income that is generated from a particular property. However, there are some different concepts to it as well. It gets distributed in a complete chain process which is involved in the operation of the creating the value of real estate properties. So here are some of the most common techniques which are prevalent in the industry while valuing the properties.
Capitalization Rate for Evaluating Real Estate
While evaluating the value of any income property, the complete operating income of the property is being used. And there are two different types of price are being involved, the asking price and the cap rate- of which both of them hold an inverse relationship. Higher the cap rate, lower the asking price for any particular property.
The Gross Rent Multiplier for Value Estate
While the previous method used the net income of any particular property, the Gross Rent Multiplier process uses the gross rentals generated out of any particular property. Now there are two distinct methods of calculating the gross rent as there are two separate parameters as well- the Gross Potential Income and the Gross Operating Income. When compared, among the two, value estimate using the Gross Operating Income is much favored as it keeps the factors like loss during occupancy and non-payment in detailed consideration.
Apart from these two, there are some subjective issues as well which cannot be ignored while evaluating the net worth of real estate. Even though there are advantages of using these two methods, neither of them considers the condition of the property and probable expenses that might be taken into consideration. There is a depreciation value of properties for sure, and after a substantial period of usage, there have to be some maintenance and repair costs which must be taken into consideration. According to Sammy Zherka, the investors who take all the factors into consideration while examining the real worth of any property never missed out on these.
It is essential to be sharp to make the most of the investments made. The moment you miss out one, you start losing on every single dollar invested.