Property valuation, market analysis, investment ROI calculations, comparable analysis, and rental yield assessment. Use when evaluating real estate investments, analyzing property markets, or calculating returns.
Comprehensive frameworks for property valuation, investment analysis, and market assessment.
The most common method for residential properties. Relies on recent sales of similar properties.
COMPARABLE SELECTION CRITERIA:
1. Location: Same neighborhood or within 1 mile
2. Recency: Sold within last 6 months (3 months preferred)
3. Size: Within 10-20% of subject GLA (gross living area)
4. Condition: Similar age, updates, and maintenance
5. Style: Same property type (SFH, condo, townhome)
6. Lot: Similar lot size and features
ADJUSTMENT CATEGORIES:
+ / - Location premium/discount
+ / - Size differential ($X per sq ft)
+ / - Bedroom/bathroom count
+ / - Garage, pool, upgrades
+ / - Lot size difference
+ / - Condition adjustment
= Adjusted Comparable Value
| Factor | Subject |
|---|
| Comp 1 |
|---|
| Adj 1 |
|---|
| Comp 2 |
|---|
| Adj 2 |
|---|
| Comp 3 |
|---|
| Adj 3 |
|---|
| Sale Price | -- | ||||||
| Sale Date | -- | ||||||
| Distance (mi) | -- | ||||||
| GLA (sq ft) | |||||||
| Lot Size | |||||||
| Year Built | |||||||
| Bedrooms | |||||||
| Bathrooms | |||||||
| Garage | |||||||
| Condition | |||||||
| Pool/Upgrades | |||||||
| Adj. Price | -- | ||||||
| Price/Sq Ft | -- |
Primary method for commercial and multi-family investment properties.
NET OPERATING INCOME (NOI):
Gross Potential Rent (GPR)
+ Other Income (laundry, parking, storage)
= Gross Potential Income (GPI)
- Vacancy & Credit Loss (typically 5-10%)
= Effective Gross Income (EGI)
- Operating Expenses
- Property taxes
- Insurance
- Management fees (8-12%)
- Maintenance & repairs
- Utilities (owner-paid)
- Landscaping
- Reserves for replacement (3-5%)
= NET OPERATING INCOME (NOI)
PROPERTY VALUE = NOI / Cap Rate
| Property Type | Typical Cap Rate | Risk Profile |
|---|---|---|
| Class A Multifamily | 4.0-5.5% | Low |
| Class B Multifamily | 5.5-7.0% | Low-Medium |
| Class C Multifamily | 7.0-9.0% | Medium |
| Retail (NNN) | 5.0-7.0% | Medium |
| Office (Class A) | 5.5-7.5% | Medium |
| Industrial | 5.0-7.0% | Low-Medium |
| Self-Storage | 5.5-8.0% | Medium |
| Hotels | 8.0-12.0% | High |
Used for unique properties, new construction, or insurance purposes.
COST APPROACH:
Land Value (from comparable land sales)
+ Replacement Cost New (current construction cost)
- Depreciation
- Physical (age, wear)
- Functional (outdated features)
- External/Economic (market decline, location)
= ESTIMATED PROPERTY VALUE
ANNUAL CASH-ON-CASH RETURN:
Annual Pre-Tax Cash Flow / Total Cash Invested x 100
TOTAL CASH INVESTED:
Down Payment
+ Closing Costs
+ Rehab/Renovation Costs
+ Initial Reserves
= Total Cash Invested
ANNUAL PRE-TAX CASH FLOW:
NOI
- Annual Debt Service (mortgage payments)
= Pre-Tax Cash Flow
Target: 8-12% for buy-and-hold residential
| Metric | Formula | Good Target |
|---|---|---|
| Gross Yield | Annual Rent / Purchase Price | 8-12% |
| Net Yield | NOI / Purchase Price | 5-8% |
| Cap Rate | NOI / Current Market Value | 5-10% |
| Cash-on-Cash | Cash Flow / Cash Invested | 8-12% |
| DSCR | NOI / Annual Debt Service | 1.25x+ |
| Price-to-Rent | Purchase Price / Annual Rent | 10-15x |
| GRM | Purchase Price / Gross Annual Income | 8-12x |
PURCHASE ANALYSIS:
Purchase Price: $__________
Down Payment (___%): $__________
Loan Amount: $__________
Closing Costs: $__________
Renovation Budget: $__________
Total Cash Required: $__________
MONTHLY INCOME:
Gross Monthly Rent: $__________
Other Income: $__________
Vacancy (___% of GMR): ($__________)
Effective Monthly Income: $__________
MONTHLY EXPENSES:
Mortgage (P&I): $__________
Property Tax: $__________
Insurance: $__________
HOA/Condo Fees: $__________
Property Management: $__________
Maintenance Reserve: $__________
Utilities (owner-paid): $__________
Total Monthly Expenses: $__________
MONTHLY CASH FLOW: $__________
ANNUAL CASH FLOW: $__________
CASH-ON-CASH RETURN: ____%
5-YEAR PROJECTION:
Year 1 Cash Flow: $__________
Cumulative CF (5 yr): $__________
Equity Built (5 yr): $__________
Appreciation (___/yr): $__________
Total Return (5 yr): $__________
Annualized ROI: ____%
MONTHLY PAYMENT (P&I):
M = P [ r(1+r)^n ] / [ (1+r)^n - 1 ]
Where:
M = Monthly payment
P = Loan principal
r = Monthly interest rate (annual / 12)
n = Total number of payments (years x 12)
AMORTIZATION SNAPSHOT (Year 1 vs Year 15 vs Year 30):
| Period | Payment | Principal | Interest | Balance |
| ------- | ------- | --------- | -------- | --------- |
| Month 1 | | | | |
| Year 5 | | | | |
| Year 10 | | | | |
| Year 15 | | | | |
| Year 30 | | | | |
| Factor | Metric | Data Source | Signal |
|---|---|---|---|
| Population Growth | Annual % change | Census, BLS | > 1% = good |
| Job Growth | YoY employment change | BLS, local data | > 2% = good |
| Median Income Growth | YoY change | Census ACS | > 3% = good |
| Supply Pipeline | Permits issued | Census, HUD | Monitor |
| Vacancy Rate | % of units unoccupied | Census, CoStar | < 5% = good |
| Days on Market | Average DOM | MLS data | < 30 = hot |
| Price-to-Income | Median Price / Median Income | Zillow, Census | < 4x = affordable |
| Rent-to-Income | Monthly Rent / Monthly Income | HUD, local data | < 30% = sustainable |
| Category | Weight | Factors to Evaluate | Score (1-10) |
|---|---|---|---|
| Employment | 25% | Job diversity, major employers, growth | |
| Schools | 20% | Ratings, proximity, district reputation | |
| Safety | 15% | Crime stats, trends, perception | |
| Infrastructure | 15% | Transit, roads, walkability, internet | |
| Amenities | 10% | Retail, dining, parks, healthcare | |
| Growth Trend | 10% | New development, rezoning, investment | |
| Affordability | 5% | Price relative to metro, rent trends | |
| Total Score | 100% |
PROPERTY SCORECARD:
Score each factor 1-5, multiply by weight.
| Factor | Weight | Score | Weighted |
| -------------------- | ------ | ----- | -------- |
| Location Quality | 20% | | |
| Cash Flow Potential | 20% | | |
| Appreciation Outlook | 15% | | |
| Condition / CapEx | 15% | | |
| Tenant Demand | 10% | | |
| Financing Terms | 10% | | |
| Management Burden | 10% | | |
| TOTAL | 100% | | __ / 5.0 |
RATING:
4.0-5.0 Strong Buy
3.0-3.9 Buy / Hold
2.0-2.9 Hold / Caution
< 2.0 Pass
1031 LIKE-KIND EXCHANGE:
Defer capital gains tax by reinvesting proceeds into "like-kind" property.
KEY RULES:
- 45-day identification period (ID up to 3 properties)
- 180-day closing deadline
- Must use Qualified Intermediary (QI)
- Equal or greater value and debt required
- Same taxpayer name on both transactions
- Cannot receive "boot" (cash or unlike property)
IDENTIFICATION RULES:
1. Three Property Rule: ID up to 3 properties of any value
2. 200% Rule: ID any number, but FMV cannot exceed 200% of relinquished
3. 95% Rule: ID any number if you acquire 95%+ of identified value
COMMON PITFALLS:
- Missing the 45-day or 180-day deadline
- Touching proceeds (must go through QI)
- Attempting related-party exchanges
- Not matching debt levels (creates taxable boot)
- Mixing personal use with investment use
1% RULE (screening test):
Monthly Rent >= 1% of Purchase Price
$200,000 property should rent for >= $2,000/month
2% RULE (strong cash flow):
Monthly Rent >= 2% of Purchase Price
Rarely achievable in appreciating markets
50% RULE (expense estimate):
Operating expenses = ~50% of gross rent (excluding mortgage)
Quick NOI estimate = Gross Rent x 0.50
70% RULE (for flips):
Max Purchase = (ARV x 70%) - Repair Costs
ARV = After Repair Value