the cap rate approach to arrive at a property’s market value can be used for any rental income property. Including, multi-family units, office buildings, warehouses, retail strip malls, or similar properties that generate rental income.

This is particularly helpful when you want to arrive at a rough listing or resale price quickly and easily. When you might want to suggest a price for a particular rental property based on the market cap rate or a customer’s desired capitalization rate, for example.

In this article, we’ll use a mock situation and walk you through the process. Let’s assume that you were asked by a customer to suggest a selling price for his 8-unit apartment complex.

A) Determine net operating income

So you understand. Net operating income (or NOI) is one of the most important calculations made in regard to any real estate investment because it represents the property’s potential income after all vacancy and operating expenses have been subtracted; consider it as the investment property’s productivity, or measure of cash flow.

When the property is financed, for example, NOI represents the cash flow available to pay the mortgage; if the investor pays all cash for the property, and thus eliminates a mortgage payment, then it becomes the annual cash flow (i.e., cash flow before taxes).

As your first order of business, then, you would want to determine the net operating income for the property.

Here’s the calculation.

Gross Scheduled Income (GSI) less Estimated vacancy and collection losses = Effective Gross Income (EGI) + Income from other sources such as late fees, vending machines, and so forth = Gross Operating Income (GOI) less Annual operating expenses such as real estate taxes, utilities, insurance, maintenance and repairs, landscaping, management fees, legal and accounting, and so forth = Net operating income (NOI)

For our example, we’ll assume that the income property has a $54,000 GSI, $2,700 vacancy loss, $600 income from sources other than rent (i.e., coin-operated washers and dryers), and $20,760 annual operating expenses.

$54,000 (GSI) less 2,700 (Vacancy) = $51,300 (EGI) + 600 (Other Income) = $51,900 (GOI) less 20,760 (Operating Expenses) = $31,140 (NOI)

B) Determine the desired rate of return Next, we have to determine the capitalization rate we want to use for our calculation using one of two approaches. Either we research the market for similar income properties to arrive at a market cap rate or we use the customer’s desired rate.

For our example, let’s say that other similar apartment complexes in the area reveal an average cap rate of 6.23% and in turn make the decision along with the seller to use that rate. Bear in mind, however, if the seller is adamant about using his own desired rate, and it’s different from the market rate, we would side with the customer.

In other words, if our seller preferred to use a capitalization rate of, say, 5.5%, then we would calculate his rental property value based upon that rate of return.

C) Calculate the real estate value Lastly, now that we have the property’s net operating income of $31,140), and plan to use the market rate of 6.23%, we can calculate our customer’s income property value with this formula: Net operating income / Cap rate = Real estate value, or $31,140 / 6.23% = $500,000

Okay, now you’re ready to call your customer. Based upon a net operating income of $31,140 and a market cap rate of 6.23%, you estimate that the customer’s apartment complex has a market value of $500,000.

Of course, for our purposes, we kept it simple. In a real life situation you, naturally, would want to use credible and accurate (not pie-in-the-sky) numbers to arrive at the property’s NOI. Moreover, you would want to consider other factors that could influence the property’s value.

Upside rent potential, for instance, or the ability to add more units to the property would surely increase its market value. Whereas, perhaps an impending zoning regulation that would make it a less desirable rental, and maybe negatively impact the rents or decrease occupancy levels, would drop its market value. But you get the idea.

By: James Kobzeff

About the Author:

Property Solutions, LLC

Since the credit crunch mortgage lenders have drastically changed their lending criteria, making it virtually impossible to make money from property.

Previously it was quite easy to buy a property, add some value to it (by refurbishing or decorating it) and then re-selling or letting it out for a tidy profit or a nice monthly residual income.

Things are really different now; lenders (the few that are left) require a 50-75% deposit on a purchase, a squeaky clean impeccable credit history and for the buyer not to be over exposed. So if you have, say, a few properties, you may be considered as a high risk because of the fear of over exposure (particularly as property prices are steadily going down in value) resulting in negative equity.

So let’s take a look at a scenario. Let’s say you want to purchase a property on a Buy To Let. The property costs £250,000, a deposit of between £62,500 and £125,000 will be needed. You may if you are lucky get a positive rental cash flow of £100 – £150 per month. Ahem, excuse me if you had a spare £62,000 or £125,000 lying around I’m sure you would put it to a much better use than to invest it for a measly return of £100 per month.

So the question is, what should one do?

Is there another way to make money in UK property in this current economic down turn?

What about buying a property, (since the prices are low at the moment), doing it up, renting it out for a few years and then selling it when the prices go back up?

Well, in theory that could work but property prices will most likely go down further before they go up. Economists are saying that even when the prices go back up they would perhaps only return to the prices of 2007, not only that it could take another 7 years before that happens anyway.

What can we do in the meantime?

Surely there must be another way?

Is there another way?

The answer is yes!

One must find buyers, buyers who are prepared to buy UK property regardless of the economic climate. Buyers that are in the property game for the long haul, buyers who are prepared to sit it out for better times.

Simply find these buyers, ask them what they are looking for and find it for them.

By: Kajoku Property

About the Author:

Property Solutions, LLC

Income Taxes (How Real Estate Investors Minimize Taxes)

Tax tips and tax help to assist taxpayers by describing optionsfor tax reduction and tax cuts through lawful tax deductions. Income taxes are too high. However, real estate investors have found many options to reduce the level of federal income taxes. Congress has provided a number of income tax benefits for real estate investment. These include depreciation, cost segregation, tax-free exchanges (1031 exchanges), casualty losses and capital gains treatment. Real estate investors who utilize these income tax benefits are able to reduce or even eliminate federal income taxes. Tax reduction reduces the risk endured by real estate investors since they have more liquid capital. Income taxes are calculated based on taxable income. Taxable income is calculated by deducting allowable expenses from revenue/income. The amount of revenue for real estate investors is generally a fixed number. There may be modest variances for cash basis versus accrual basis. However, it is typically difficult to materially modify the level of revenue. However, there are many options for judgment in calculating expenses. These include whether or not to capitalize or expense repairs, the level of debt and interest, and depreciation. The resultant tax cut can be substantial. Depreciation is a non-cash expense which increases total expenses and reduces taxable income. Real estate depreciation is based on the concept that improvements to land physically deteriorate overtime. Real estate owners are allowed to depreciate a portion of the cost basis to account for this physical depreciation. (In reality, the market value of improvements typically appreciate in value over five or 10 years even though depreciation is recorded for accounting purposes.) Real estate depreciation both defers and reduces federal income taxes. Depreciation defers income taxes from the time income is earned until the property is sold, or a gain from the property is recognized. (Real estate investors may defer recognizing the gain on the sale of property by utilizing a 1031 exchange.) Depreciation reduces federal income taxes by converting the character of income from ordinary income to capital gains income. The maximum income tax rate for ordinary income is 35% while the maximum income tax rate for capital gains income is 15%. Although some depreciation is recaptured at a 25% rate, it is possible to have much of the income shielded by depreciation recaptured at 15%. Furthermore, even if depreciation simply reduces the tax rate from 35% to 25%, and defers payment of taxes for a period of years, the savings are meaningful. Cost segregation is a specialized service real estate investors use to maximize depreciation. Cost segregation is typically performed by real estate appraisers or engineers to fine tune the real estate depreciation schedule. Cost segregation identifies and quantifies up to 130 components which qualify for short-life depreciation. The building structure is depreciated over 27.5 years (rental residential property) or 39 years (commercial property). Short-life property is typically depreciated over 5, 7 or 15 years. Obtaining a cost segregation report often allows real estate investors to allocate 20 to 40% of the cost basis to short-life depreciation. Shifting a significant portion of the cost basis from long-life components to short-life components can increase depreciation by 50% to 100% during the first five to seven years of ownership. Depreciation is a powerful income tax reduction tool specifically available for real estate investors. Real estate investors can magnify the benefits of depreciation by utilizing cost segregation. Click here for a FREE preliminary analysis of tax savings resulting from your property. Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of where cost segregation generates meaningful tax deductions. City:

New York, NY

Bridgeport, CT

Hartford, CT

San Francisco, CA

Memphis, TN

Boston, MA

Los Angeles, CA

Baltimore, MD

Orlando, FL

Denver, CO

Birmingham, AL

Sacramento, CA

Honolulu, HI

Bakersfield, CA

Lakeland, FL

Dayton, OH

Milwaukee, WI

Santa Rosa, CA

Portland, OR

Jacksonville, TN

Colorado Springs, CO

Fresno, CA

Greenville, SC

Worcester, MA

Richmond, VA

Austin, TX

Louisville, KY

Albuquerque, NM

Springfield, MA

Syracuse, NY Cost segregation produces tax deductions for virtually all property types. Property Type:

Research and development

Auto salvage yard

Manufacturing/processing

Used car lot

Movie theatre

Night club

Motel

Truck stop

Commercial building

Greenhouse Almost every industry, including the following, can generate cost-efficient tax deductions by using cost segregation. Industry:

Golf courses and country clubs

Building supply dealers

Truck transportation

Printing activities

Publishers

Chemical manufacturing

Warehousing and storage

Mineral product manufacturing

Food manufacturing

Computer and electronic manufacturing The Market Research and Consulting division of O’Connor & Associates benefits those who are involved in commercial property investing. Statistical data, ownership and management information is routinely gathered for four major land uses – multifamily, office, retail and industrial. This information allows investors to compare competitive properties, facilitate business decisions and track market and submarket performance. In addition the data is useful to brokers who for example continually monitor Houston retail center leasing, Houston office center leasing, Houston industrial center leasing, Houston apartment rental, Dallas apartment rental, Ft. Worth apartment rental, Austin apartment rental, San Antonio apartment rental.

This capacity to research, analyze and interpret market trends and the impact of specific transactions is a major reason for why developers and acquisition experts rely on O’Connor & Associates for market studies, feasibility studies, rent studies, tax credit studies, project design guidance, property performance evaluation and lease audits. O’Connor & Associates is an acknowledged source of trends in real estate investing and market activity.

By: Patrick O’Connor

About the Author:

The Reo List Every Agent Must Have!

Many people from the UK have been attracted to Portugal by the year long pleasant climate, the affable Portuguese locals, and simplicity of taking a trip from the UK to Portugal. They have decided to make Portugal a home away from home, while some have even permanently settled in this country.

Revised planning regulations were introduced in 1993. Since that year, construction of new building has been minimized. This has led to an increase the price of the properties by as much as around 15 to 20 percent per year. But this has ensured that the new buildings are built in harmony with the surroundings.

The steeper price of land plots and the superior quality of the properties in Portugal has led to the property costs becoming higher than that in Spain. Nevertheless, older properties are still available in the interiors that can be obtained at a lower price and renovated to suit modern standards of living.

This guide aims at assisting you in deciding whether you want to make Portugal your second home

Synopsis of Popular Destinations

The settlers from the UK and Ireland have always preferred the Algarve for making purchases of their second homes in Portugal. This has resulted in intense demand and consequently the property prices in this region have escalated. Nowadays, considerable attention is being attracted by the northern areas like the Silver Coast and the Costa Verde, where tourism is still under-developed. Expansion in transportation and road and rail networks is being carried out.This guide gives brief descriptions of the areas most popular with the second home purchasers from the UK and Ireland.

The Algarve

The Algarve has been a long-standing favoured destination for holidaymakers from the UK and Ireland. Now it is one of the coveted locations for procuring a vacation house away from home.

Algarve is somewhat more expensive in terms of landed property. This is because of the unswerving sturdy demand that resulted in escalating property values. The demand is created due to the potential for consistent income from leasing due to its agreeable weather, and stringent regulations for planning that have made Algarve stand out from several other coastal areas of Spain. Nevertheless, there is something for every pocket, depending on location. The price or property in and around Lagos in the west and the suburban areas in the east are still reasonable in comparison with the inland areas. The ATT motorcade extends all along the Algarve shoreline, thus connecting the western coast of Algarve with the rest of the country. Predictable, capital appreciation in this region will be swift.

Silver Coast

Silver Coast is situated in central Portugal, between Porto and Lisbon. Marvellous architectural and religious structures, of immense historical significance, are housed at Silver Coast. The vast, virginal coastal area is dotted by isolated fishing villages. Farther inland, the rivers like Tagus waters the productive rural areas rich in livestock and a lush growth of agricultural crops. Even though the place is well connected with the rest of Portugal by the highway A1, the solitude remains unhampered.

The international real estate market has so far not extended up to the Silver Coast. As a result, property prices are still low compared to other areas of Portugal. Improved infrastructure should aid in drawing more buyers and result in prolific capital growth.

Costa Verde

Portugals Costa Verde is not the same as the Spanish province having the identical name. This region covers the districts of the Minho and the greater part of the Douro Litoral, stretching north from Portugals second largest city Porto to the Spanish frontier and some way north of Viana do Castelo.

This is a land of undulating mountain slopes and rich, productive valleys. Copious rainfall all year round ensures thriving agriculture in the valley and luscious green vegetation covers this part of Portugal. The National Park of Peneda-Geras, comprising of a diverse array of flora and fauna and offering a stunning panorama is situated on the

Costa Verde.

The lowest prices of property are available in this region, and the best bargains can be obtained in the inland areas rather than on the coastal zones.

Proceedings Involved in Buying a property

The purchase process

A verbal agreement between the vendor and the purchaser is followed by an examination of the title deeds and other documents by the solicitor of the person who will be buying the property. This is dome to ensure that all the legal documents including the caderneta urbana, which clearly delineates the propertys dimensions, borders and chargeable price, and the habitation license, which reveals its fulfillment of construction rules, are in order.

A Fiscal Number is then issued by the local tax office. An interim indenture is drawn between the buyer and the seller, which clearly mention the terms of the transaction. The buyer makes a deposit that usually amounts to 10 per cent of the purchase price.

After all the conditions detailed in the provisional agreement are fulfilled, both parties sign the final agreement in front of a Notary Public. At this point the outstanding sum is paid. The notary registers the deal with the Land Registry and records the caderneta urbana at the tax office.

Costs

In order to register your property with all the necessary government departments you will need to pay a number of charges. To account for such expenses, you need to set your budget in a manner that accommodates an advancement of 10 to 15 percent over the cost price of the property. These fees include:

Transfer tax or SISA (applicable for resale properties only). This varies according to the type and value of the property under consideration.

Value Added Tax (applied only on new constructions). This is typically 17 percent.

Notarys fees. This usually is set at around 153euro

Legal charges. This amounts to 1 or 2 percent.

Deed registration fee. This is normally 0.75-1 percent.

Declared Values

The vendors in the past, in order to reduce the capital gains tax and other charges levied in the event of a property sale, used to under-declare the actual price of a resale property. Even now some private sellers may insist on this practice. Do keep in mind that this in an illegal practice liable to rigid penalties. Even if you are able to avoid the watchful eyes of the authorities on the matter of under-declaration at the time of buying the property, it is very likely that you will be adversely affected by the difference in capital gains when you decide to sell your property.

Financial Arrangements through Mortgages

Remortgaging the UK properties is an attractive option available to consumers in need of finances for making a purchase at Portugal. A mortgage on the Portuguese property can also be arranged. However, remortgaging is favorable because releasing equity on the UK property enables the purchaser to make the payment in cash and to avert a second mortgage. Of course this benefit can be utilized only by the persons who are the outright owners of their first home in the UK.

Finances for purchase and home improvements can be attained through Portuguese lenders. UK credit suppliers will loan funds equal to 80 per cent of the cost of purchase for the second home purchase over tenure of 15years. Portuguese providers will lend the identical sum over a 5 to 25 year loan period.

Euro mortgages

The European Central Bank (ECB) set the rate of the Euro mortgages to a value that is at present lesser than the Bank of England base rate. Thus this offers a lucrative alternative. However, the currency markets are volatile. Any unforeseen alteration in the currency market may adversely affect people borrowing money via euro mortgage. The lower base rate of ECB as compared to that of the Bank of England does not warrant savings on reimbursements for persons opting for a euro mortgage. The competitive UK mortgage market provides several advantageous deals on sterling loans. Hence it is advisable to carry out a market research before applying for a loan.

Taxation

The tax system in Portugal resembles the system that is practised by all EU countries. A pact for double taxation has been made between the two nations, Portugal and the UK.

Personal Taxation as applied to Non-residents

Persons who are not residents of Portugal need to pay taxes only on income earned at that country, for instance, interest paid on deposits or savings in Portuguese banks. VAT, tax for capital gains and wealth tax may also be levied.

A yearly income tax return must be filed if the generate earnings from renting out their property. Such income is levied at a flat rate of 25 per cent. Only the expenses on repairs and maintenance can be deducted from tax, no subtraction on mortgage interest against rents is endorsed.

Personal taxation as applied to residents

People who are permanent residents of Portugal are put through taxation on global income, bequests and capital gains. A person belonging to a foreign nationality residing at Portugal for a period extending beyond 183 days all through a tax year, starting from 1st January and ending on 1st December, is regarded as a resident. They need not stay for 183 consecutive days to come under taxation.

Other taxes that are imposed on residents of Portugal include VAT, stamp tax, vehicle sales tax, taxes on real estate deals and tax on rentals.

The Local Taxes that are to be Paid

Contribuicao autarquica is a municipal property tax that is collected every twelve months as per the registered value of a property and the existing local services. This amounts to 0.8 percent for properties in rural areas and for properties in urban areas this ranges from 1.1 to 1.3 percent.

Tax on Legacies and Bequests

On condition that all apposite certifications are presented, any tax on inheritance (referred to as Stamp Tax in Portugal) need not be paid when a property is bequeathed to a close family member. Hence, you should make a detailed will after you buy a property in Portugal.

It is advisable that you engage someone who specializes in the international system of taxation to go through all the technicalities and take care that while you cover your liabilities satisfactorily, you do not end up paying more than what is required.

Fiscal Aspects

The official currency of Portugal is the euro. The current exchange rate is 1 EUR = 0.673749 GBP UK Pounds.

Foreign money in cash or travellers cheques can be freely imported but you should notify the customs department if the imported currency is more than 12000 euros.

Banks, ATMs and bureaux de exchange are in plenty in all major towns and tourist resorts. Usual hours of banking are 8:30 a.m. to 3:00 p.m., from Monday to Friday.

All major credit cards and travellers cheques are commonly accepted. It is prudent to carry the cheques in euros, American dollars or pounds sterling to evade additional charges on exchange rates.

Laws related to Passports, Visas and Residence Permits

Passports and Visas

All EU citizens mush possess a valid national identity card or passport in order to enter Portugal. It should stay valid for the period of their stay and a visit for up to 90 days is permitted. A visa is not necessary.

Residence Permit

British nationals being EU citizens do not require residence permits to live in Portugal. However, while applying for driving license, or for filing taxes, such permits may prove useful as legal residence proofs.

Inhabitation for a period of 90 days to 1 year will be covered by a short-term residence permit. A long term permit will remain valid for up to five years and following that tenure can be automatically revalidated. At the end of that period renewal can be obtained by applying in person.

The Economy of Portugal

Almost 23 billion euros of EU funds have been allocated to Portugal that has helped Portugal to enjoy one of the EUs most rapidly developing economies for quite some time. The funds have been utilized to improve the transportation services, promoting tourism and upgrading the real estate market.

Important sectors of economy have been liberalised by the privatisation of several government controlled organizations. The economy has become service based, nearly three quarters of Portugals GDP is being provided by the service sector. Almost 6 percent is contributed by agriculture, while the rest is supplied by trade and commerce. The principal export items include machinery and tools, garments, footwear, cork and wood, equipments for mining, and wine.

UK being one of Portugals chief overseas investors, relationship between the two nations is friendly and warm.

By: Leo Fogarty

About the Author:

Creative Real Estate System W Complete Tools For Todays Real Estate!

Owning a property in the major position of the city in today’s times is one of the hottest commodities as it yields you a superior flow of uniform income all through the time. Customers are drawn by the well retained residential and commercial properties and this thus saves your flow of income for a uniform basis. Thus, one of the most common ways to yield an expected income regardless of the inhabiting customers is by leasing the property to agents who can take good care of the property. In order to get dependable and long term clienteles, they have to retain the property well by investing their money. Thus you will have double benefits from your property, a uniform source of excellent income and your property is also being well sustained by the property agent. Residential investments always ascertain to be extremely fruitful in comparison to the investing in the property for commercial purposes. Moreover, this constant boom in the residential investment Brisbane is caused by the rising population across the world. The rate of growing population is very high but accommodations are not rising at the same speed. But, with the rising population, the current number of residential properties is not enough for people across the world. Thus a new idea has been initiated to assist you enhance your earnings with your limited resources by the Canterbury amenities.

You are asked to endow your money properly in the shares of a few apparent companies or for investing in residential property. The appropriate investment is such that give you a steady flow of income on the fixed basis keeping your capital aside. Instead of blocking your money into any less satisfying deposits, it would be better if authorize your hard earned money into some fruitful investment that makes your life restful. They stress on being debt free at first and then ponder on the investment. Any mounting outstanding like government taxes or credit card balance has to be advanced on the precedence basis to prevent any accretion of the extreme interest that results into a big volume gradually. Thus, rather than being moneyless, it is better being debt free.

Once the debts are advanced then ponder on some healthy sources of investment from where you can a profitable source of income. If possible, you can also get some tax free loans where in you can empower your money in the residential property. The hiring out the property is enhanced than doing business in property as you have to pay extreme tax each time you sell or buy the property and by the day’s end, you are still struggling to obtain profits from the investments.

By: Jessica Thomson

About the Author:

Learn To Find Commercial Real Estate Deals And We Will Fund Them