Real Estate Analysis - Investment Property Calculator blog http://www.RealEstateAnalysisFREE.com/blog Info about Real Estate Analysis and Real Estate Investment Software Fri, 19 Apr 2013 03:59:22 +0000 en-US hourly 1 http://wordpress.org/?v=3.5.1 Optimal Holding period calculation http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/optimal-holding-period-calculation http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/optimal-holding-period-calculation#comments Fri, 19 Apr 2013 03:59:22 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=210 Economically the most accurate method of calculating optimal holding period is based on net present value. We can calculate NPV of the investment, when it would be hypothetically sold in each year – starting from year 1 going till, for example, year 30. Then the highest NPV is chosen from these 30 values and the according year will be the optimal holding period. Since it is calculated from NPV, it takes in account the time value of money and is counted with Cash Flow after taxes. Sometimes the optimal holding period is shorter than the length of the mortgage and the reason is the shortening tax shelter, due to a smaller interest part of the mortgage payments every year. In the first years of mortgage, most of the mortgage payment is an interest payment with small principal payment and since the interest part is tax deductible, it creates higher tax shelter.

Another method for estimating a holding period is using return on equity calculated for every year. When the return on equity starts to decline, it can be a good point for resale. This method is simpler; however it does not count with the time value of money and depends significantly on the estimated appreciation. Therefore it is not very exact.

Both of these methods use estimation for future market conditions and therefore might not work correctly if the market is unpredictably changing in certain times. Therefore they should not be used as the only decision for selling a property, more as supportive information.

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]]> http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/optimal-holding-period-calculation/feed 0 Return on Investment (ROI) in Real Estate http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/return-on-investment-roi-in-real-estate http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/return-on-investment-roi-in-real-estate#comments Thu, 20 Dec 2012 14:00:05 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=205 Return on investment (ROI) is one of the very popular measurements, because it usually presents very high percentages. However it does not take in account time value of money, and it does take in count some assumptions such as appreciation.

return on investment Return on Investment (ROI) in Real Estate

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]]> http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/return-on-investment-roi-in-real-estate/feed 0 Gross Rental Yield http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/gross-rental-yield http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/gross-rental-yield#comments Mon, 26 Nov 2012 19:57:05 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=201 Gross rental yield is one of the simpler calculations and can be used for a particular property or also as a market indicator when using median values of rent and house prices. It is counted from gross scheduled rent and initial investment which includes purchase price of the property and closing fees.

gross rental yield Gross Rental Yield

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]]> http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/gross-rental-yield/feed 0 Gross Rent Multiplier http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/gross-rent-multiplier http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/gross-rent-multiplier#comments Tue, 23 Oct 2012 17:54:00 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=197 Gross rent multiplier is usually used for estimating the market value of the investment property. It is used when comparing properties in a similar area and of a similar type. It is assuming that when somebody has recently paid for example 8 times the gross scheduled income as a price for certain property, then the market value of a similar property, the investor is considering, should also be 8 times its gross scheduled income. This method is not very accurate, nor takes in count time value of money. It is advised to use it only as a simple benchmark, possible when comparing multiple properties between each other.

gross rent multiplier Gross Rent Multiplier

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]]> http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/gross-rent-multiplier/feed 1 Return on Equity (ROE) in Real Estate http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/return-on-equity-roe-in-real-estate http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/return-on-equity-roe-in-real-estate#comments Mon, 24 Sep 2012 16:51:27 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=193 Return on equity is one of the financial measures used as well on other types of investments. In Real Estate analysis the return on equity means a ratio between cash flow after taxes (CFAT) and the initial investment. ROE is calculated for the first year typically and is expressed as a percentage. It is advisable to calculate this measurement for other years as well, and in case of its increasing decline over the time, resale of the property can be evaluated.

return on equity Return on Equity (ROE) in Real Estate

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]]> http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/return-on-equity-roe-in-real-estate/feed 0 Cash on Cash Return in Real Estate http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/cash-on-cash-return-in-real-estate http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/cash-on-cash-return-in-real-estate#comments Wed, 29 Aug 2012 14:48:28 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=189 Cash on cash return is in fact equity dividend rate. It is a ratio between annual cash flow before taxes and the total initial investment, expressed as a percentage. It is not an exact measurement of an investment, because it does not take in account the future value of money. However if it is used with the expected cash flow of the first year of ownership, it can at least give a first idea about the investment and an easy comparison to other types of investments, but definitely it should not be the main comparison measurement, as it is presented in many popular investment publications.

cash on cash return Cash on Cash Return in Real Estate

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]]> http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/cash-on-cash-return-in-real-estate/feed 0 Estimated Value using Cap Rate http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/estimated-value-using-cap-rate http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/estimated-value-using-cap-rate#comments Wed, 25 Jul 2012 12:45:07 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=185 Last month, we described the calculation of Capitalization Rate in this post. There is however more usual use of the cap rates. In this case, when the cap rate of similar properties  in a certain area is a known parameter, we can reasonably estimate the property value based on this cap rate. Again NOI has to be constant in time.

estimated value Estimated Value using Cap Rate

This value estimation based on cap rate is quite widely used. However there are a few important setbacks which have to be known to each investor, before using this ratio. First, it is important to find very accurate information about cap rates in the local market area. For the USA market realtyrates.com can be used as a valuable source for this type of data. Other factors have to be considered as well, such as changes occuring to the local area and the fact that this calculation does not reflect adjustments in value for necessary capital improvements or expected vacancy losses.

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]]> http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/estimated-value-using-cap-rate/feed 0 Capitalization Rate (Cap Rate) http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/capitalization-rate-cap-rate http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/capitalization-rate-cap-rate#comments Wed, 27 Jun 2012 12:38:59 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=180 Capitalization rate (cap rate) is in fact the “discount rate”, used for discounting the future income to determine its present value. There are two main purposes for which cap rate can be calculated and used.

We can calculate property’s cap rate and then compare it with other similar properties in a certain area. Capitalization rate is calculated as ratio of the net operating income and the value of the property and NOI has to be constant in time for this calculation.

cap rate Capitalization Rate (Cap Rate)

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]]> http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/capitalization-rate-cap-rate/feed 0 Depreciation http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/depreciation http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/depreciation#comments Tue, 27 Mar 2012 07:52:05 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=176 Depreciation (or sometimes called cost recovery) is the amount of the tax deductions that an investor can take each year from the depreciable asset, until this asset is fully written off. In Real Estate only the building part (not the land underneath it) can be counted for depreciation. The property can be depreciated over its useful life. The useful life is specified by the tax laws and usually is not the same as the expected actual physical life of the property. According to the current tax laws, residential properties are depreciated over 27.5 years in the USA and nonresidential (commercial) over 39 years. Closing costs and capital improvements are both depreciable in a similar way.

depreciation Depreciation

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]]> http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/depreciation/feed 0 House P/E Ratio http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/house-pe-ratio http://www.RealEstateAnalysisFREE.com/blog/real-estate-terms-and-definitions/house-pe-ratio#comments Thu, 02 Feb 2012 23:45:43 +0000 admin http://www.RealEstateAnalysisFREE.com/blog/?p=171 P/E (Price to Earnings) ratio is often used when measuring other investment tools, such as stocks. The Real Estate P/E ratio counts with the initial investment and annual net operating income. It gives an investor a good comparison of possible use for his money in other investments, especially on the stock market.

house pe ratio House P/E Ratio

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