Today government approved real estate valuers gonna be talking about property valuation methods. Property valuers are going to use today is the cap rate.
Cap Rate Property Valuation Method
So basically what the cap rate method is going to tell you is when you buy a property at a specific price what the rental income is returning you annually percentage-wise in comparison to the price if you were to buy the property all-cash it’s a quick way to just go through a property.
And determine its value and you know make an educated decision on whether you want to buy that property and hold it or maybe buy and sell it because the comps are higher in that area.
So the formula for cap rate is net operating income divided by the price that operating income is calculated by taking the gross annual income and subtracting the expenses not including debt sir net debt service.
So let’s just make up a situation government approved property valuers have a $, property the rent is and we’ll say it’s a three-bed all right so we want to figure out what the gross annual income is so the gross income is going to be the times minus expenses the expenses are going to be the management the maintenance the taxes the insurance.
And the vacancy so if commercial property valuers add up these expenses percentage-wise what do we get so the you’re getting a Year rent yeah Eyesore gross rent the management is going to be , – maintenance – taxes do taxes on , usually .% to taxes – the insurance – vacancies all right.
So if you add those up you’re going to get your net operating income let’s figure that out right now subtract forty inners subtract seven s subtract that operating income is now how do certified property valuers calculate the cap rate again the net operating income divided by the price.
So Property valuers know this property is going to return us nine thousand one hundred dollars in cash after paying out everyone so Property valuers need to divide that net operating income by the price.
So the divided by thousand that you’re paying in cash twelve point two so this property would be a .% cap rate residential property valuers usually buy it ten plus so this would be a perfect property for us to rent out and hold you get that twelve percent.
So if Property valuers take how many years would it take to double our money registered property valuers take eight point one years to double your money with this property plus you’re gonna be raising the rents every year.
So you could probably do it in six years in Sydney most investors are looking for % to % cap rates that’s just not good enough you can do ten plus in multiple markets wasn’t even one of the top markets that we invest in we invest in Sydney where qualified property valuers can achieve to % cap rate.