real estate finance - full book (500 pgs)

The reverse is true for expenses and capital outlays

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: income the property is capable of earning. This income approach assumes that the value of property is indicated by the amount of income that the property can generate: the greater the income, the greater the value. The income approach may use net operating income or gross income. GROSS INCOME MULTIPLIERS (COMPARISON METHOD) The use of gross income multipliers is an application of the market data approach. The Gross Income Multiplier (GIM) is a number which expresses the ratio between the sales price of a property and the gross rental income produced by that property at the time it is sold. Comparable sales properties for the gross income multiplier analysis are chosen in the same manner as sales comparables used in direct sales comparison analysis. The same salient features of the subject property which are accounted for in the direct sales comparison approach and the cost approach (location, physical characteristics, etc.) must be considered in the GIM analysis. At least 6 comparable sales properties should be included in the analysis; the use of 12 to 15 would be preferable. The comparable sales must be bona fide, arm's length transactions. All sales data must be reliable and verified by one of the principals. . Adjustments should not be necessary if the comparable properties are really comparable to the subject if adjustments are necessary, they should be made in the same proportion for both sales prices and rents. The appraiser must take care not to adjust the sales price for time, without making any corresponding change in the rent There is no standard gross income multiplier. The GIM varies according to property type, market conditions, and time. The appropriate gross income multiplier is determined by current conditions in the local market The gross income multiplier is derived by dividing the value of the property by its annual gross monthly income (GI). 12-8 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 12: QUALIFYING THE PROPERTY The GIM for a specific property is usually not rounded, except perhaps to the nearest whole number. Rounding is more likely and properly applied to the multiplier selected during the reconciliation. Gross rent multipliers are not adjusted. Reconciliation. If the properties are truly comparab...
View Full Document

Ask a homework question - tutors are online