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Traditional Measures of Investment Worth

Traditional Measures of Investment Worth

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Traditional Measures of Investment Worth

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Presentation Transcript

  1. Traditional Measures of Investment Worth

  2. Ratio Analysis • Why is it important to ensure that properties are similar before relying too heavily on ratio analysis?

  3. Income Multipliers • Gross Income Multipliers • GIM = Market Value / Effective Gross Income • NIM = Market Value / Net Operating Income

  4. Financial Ratios • Operating Ratio • Operating Ratio = OE / EGI • Break-Even Ratio • Break-Even = (OE + DS) / EGI • Debt-Coverage Ratio • DCR = NOI / DS

  5. Traditional Profitability Ratios • Overall Capitalization Rate • Cap Rate = NOI / Market Value • AKA the free-and-clear rate of return • Equity Dividend Rate • Equity Div. Rate = BTCF / Cash Investment • Cash-on-Cash Return • Cash-on-Cash = ATCF / Cash Investment

  6. Broker’s Rate of Return • A more optimistic way of looking at things. • = (ATCF + Equity Buildup) / Cash Investment • Payback Period • Payback = Cash Investment / Annual CF • Advantages and disadvantages?