The ability to determine the value of an investment property quickly is a real advantage for any real estate analyst. There are times when we might not have access to our computers and real estate investment software, or (excuse me for saying this) might just want to remind ourselves that we can still do the math on a napkin over lunch.

Whatever the case, investment real estate property such as multi-family units, office buildings, warehouses, retail strip malls and similar residential and commercial properties that generate rental income sometimes require a rough real estate valuation.

Use the following income approach.

First, determine net operating income.

Whether you can take this off an MLS listing, directly from the listing agent, or you are acquainted with the property well enough to know it, you must start with a somewhat realistic net operating income.

Secondly, determine the desired rate of return.

You make this determination by asking your real estate investors for the capitalization rate or yields desired, or use a cap rate that reflects similar properties currently available in the area.

Thirdly, calculate the real estate valuation.

Net Operating Income (NOI) divided by Cap Rate = Value

For example, suppose an apartment building just came on the market listed for $600,000 and you want to do a rough estimate to see whether you should fore go lunch and call your investor. You learn that the net operating income is $31,140 and from your knowledge of the market, you know that similar investment properties in the area are selling at a cap rate of 6.23%. How do you solve for real estate value and satisfy your interest? Simply divide $31,140 (NOI) by 6.23% (cap rate). The answer is $500,000.

In other words, assuming that you are paying close attention to income property sales and listings in your market area, you can discover rather quickly that the new $600,000 listing looks to be $100,000 over priced.

What you do next is not the issue. Perhaps you call for the marketing package anyway, or recalculate the numbers on your computer. The point is (at least from your primary calculations) that you do not need to interrupt your lunch with an urgent call to your customer. The listing does not appear to be that great of deal, and chances are that your customer will not hold it against you for not calling two hours sooner.

By Ron Victor

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About the Author

Ron Victor is a real estate professional for Creative Real Estate Investing He written many articles in various topics.For more information about real estate business, Visit: Real estate investing guide Contact him at ron.seocopywriter@gmail.com

Sensitivity analysis is a popular tool used by real estate analysts seeking to determine the best possible profitability scenario for investment properties because it involves changing one variable at a time over a possible range of outcomes to evaluate the effect of that change.

Sensitivity analysis thus allows the real estate analyst to review each variable’s impact upon the investment property’s present value and given template-based spreadsheet programs like ProAPOD® real estate investing software, a range of variables can be calculated and recalculated quickly, easily, and correctly.

ProAPOD® decided to include a “loan-to-value” sensitivity analysis in its software solutions because it provides a good way for users to evaluate monthly loan payment over a range of mortgage amounts at various interest rates. Moreover, the data appears in a table that is printable, so it makes a great investor presentation.

Creating a “loan-to-value” analysis is easy in ProAPOD®. Open the LoanInfo form and scroll down to the heading, “Loan to Interest.” In the appropriate field labeled “Loan Amount steps”, enter the dollar amount you want to “step” the loan. Then tab down to the field labeled “Interest Rate steps” and select (from the built-in menu) the amount you want to step the interest rate.

In case you’re wondering what a “step” implies, remember, you are asking our real estate investing software to create a “range” of values for a variable (in this case, loan amount and interest rate). The step you enter merely tells ProAPOD® the incremental value for that range. For example, if the investment property you want to purchase requires a loan amount of $350,000 and you step it $3,000, the range (created in the table) would include amounts for $343,000—347,000—350,000—353,000—356,000 and so on. Notice that each loan decreases and increases in incremental amounts of $3,000.

The step for interest rate does the same thing. Back to our example, if loan was based upon an interest rate of 7.0% and you step it 0.250, the table would create a range of interest rates like 6.750—7.000—7.250%. Notice that each rate decreases and increases in incremental amounts of 0.250%.

What benefit is the Loan to Interest analysis? You can quickly determine the monthly payment on a range of loan amounts at various interest rates. A cool feature, considering you get it in all our real estate investing software solutions.

Why not open ProAPOD® and give it a try. You can preview and print the report by looking for Loan-to-Interest Table.