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001 FORMULA (Fill in The Blanks)

This document lists 28 real estate valuation formulas and concepts that should be memorized through practice. It includes formulas for gross income multiplier, gross rent multiplier, overall capitalization rate, operating expense ratio, net operating income ratio, and more. It also provides examples of operating statements and discusses the three approaches to valuation: market, cost, and income approach.

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Derick Balangay
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25 views

001 FORMULA (Fill in The Blanks)

This document lists 28 real estate valuation formulas and concepts that should be memorized through practice. It includes formulas for gross income multiplier, gross rent multiplier, overall capitalization rate, operating expense ratio, net operating income ratio, and more. It also provides examples of operating statements and discusses the three approaches to valuation: market, cost, and income approach.

Uploaded by

Derick Balangay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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FORMULA : MEMORIZE THRU PRACTICE, PRACTICE, PRACTICE

1. SELLING PRICE / EFFECTIVE GROSS INCOME = GIM

2. SELLING PRICE / EFFECTIVE GROSS MO. RENTAL = GRM

3. NET OPERATING INCOME / SELLING PRICE = OAR

4. NET OPERATING INCOME / VALUE = OAR

5. RECAPTURE VALUE / SELLING PRICE = RECAP. RATE

 RECAPTURE VALUE = BLDG VALUE / REM. USEFUL LIFE


 RECAPTURE VALUE = BLDG VALUE X RECAPTURE RATE
 RECAPTURE RATE = 100% / REM. USEFUL LIFE BLDG.

PURE INCOME TO LAND AND BLDG / SELLING PRICE = INTEREST RATE

6. NOI / RATE = VALUE

7. RATE X VALUE = INCOME

8. NOI / VALUE = RATE

9. LAND INCOME / INTEREST RATE = LAND VALUE

10. BUILDING INCOME / OVERALL RATE = BLDG. VALUE

11. LAND AND BLDG. INCOME / OVERALL RATE = L & B VALUE

12. OPERATING EXPENSE / EGI = OPERATING EXPENSE RATIO

13. NOI / EGI = NOI RATIO

14. OPERATING EXP + DEBT SERVICE / PGI = BREAK EVEN RATIO

15. NOI LESS DEBT SERVICE = NET CASH FLOW

16. NET CASH FLOW / STOCKHOLDERS EQUITY = EQUITY DIV. RATE

16a. ORIGINAL LOAN X MORTGAGE CONSTANT = DEBT SERVICE

16b. DEBT SERVICE / ORIGINAL LOAN = MORTGAGE CONSTANT

17. FORMULA FOR BAND OF INVESTMENT METHOD

BANK RATIO X MORTGAGE CONSTANT = WEIGHTED RATE

INVESTORS RATIO X EQUITY DIV. RATE = WEIGHTED RATE

= OAR

OR

LAND RATE X INTEREST RATE = WEIGHTED RATE

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BLDG RATE X BLDG. CAP. RATE = WEIGHTED RATE

= OAR

18. INCOME TO LAND AND BLDG / SELLING PRICE = OAR

19. RECAPTURE VALUE OF BLDG / SELLING PRICE = RECAP. RATE

20. LAND RESIDUAL METHOD BY ANNUITY:

BLDG. VALUE / PWF = INCOME TO BLDG

21. BLDG RESIDUAL METHOD BY ANNUITY

BLDG INCOME x PWF = BLDG. VALUE

22. PROPERTY RESIDUAL BY ANNUITY

NOI X PWF = PV OF INCOME STREAM (BLDG) (1)

Plus : PRESENT VALUE OF LAND (2)

PROPERTY VALUE

SUPPORTING COMPUTATION:

 COMPUTE PRESENT VALUE OF LAND :

FUTURE VALUE OF LAND x 1/S = PV LAND

23. LOAN VALUE BY ANNUITY METHOD - CAPACITY TO PAY

BUYER’S CAPACITY TO PAY PER MO. x PWF = LOAN VALUE

 PWF = S – 1 / S i

BUYER’S MONTHLY AMORTIZATION / MAF = LOAN VALUE

 MAF = Si / S – 1

24. LOAN VALUE BASED ON COLLATERAL

APPRAISED VALUE OF PROPERTY x LOAN TO VALUE RATIO

= LOAN VALUE

25. INTEREST COMPUTATION:

 PRINCIPAL BALANCE x RATE x TIME = INTEREST

26. PLS REFER TO OUR HANDOUTS

 SQUARE,
 RECTANGLE,
 HYPOTENUSE,
 PARALLELOGRAM,
 RHOMBUS

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 TRAPEZOID,
 TRIANGLE

27. OTHER COMPUTATIONS

 STRIPPING OR DEPTH RULE


 GOODWILORL,
 SUM OF THE YEARS DIGITS,
 CPI METHOD,
 MULTIPLE LINEAR REGRESSION,
 STATISTICS,
 ADDITION, SUBRACTION, MULTIPLICATION,
 DIVISION OF FRACTIONS,
 CONVERSION : PERCENT TO DECIMAL

OPERATING STATEMENT

Potential Gross Income (PGI) say - P24,000,000.00


Less :
Allowance for vacancy and bad debts,
say 10% - 2,400,000.00
Effective Gross Income (EGI) - 21,600,000.00
Less: Operating Expenses, say - 6,480,000.00
NET OPERATING INCOME ( 1 year) - P15,120,000.00

LESS : DEBT SERVICE, SAY - 3,000,000.00


NET CASH FLOW - P12,120,000.00

NOI / VALUE OR SP = OAR

DEBT SERVICE / ORIGINAL LOAN


= MORTGAGE CONSTANT

EQUITY DIVIDEND RATE / CASH ON CASH RATE


= NET CASH FLOW / STOCK. EQUITY
28. THREE APPROACHES

 MARKET DATA,
o VACANT LOT, OLD RES. HOUSES

 COST APPROACH
o LAND WITH IMPROVEMENTS, SPECIAL PURPOSE

 INCOME APPROACH
o COMMERCIAL
o INDUSTRIAL
o RESIDENTIAL APARTMENTS LIKE HOTELS
o COMMERCIAL VACANT LOT

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