Most real estate investors eventually ask me “How do I know the value of my income properties?”
All income – All expenses = Net Operating Income
Net Operating Income / Cash Invested = Cap Rate
If you are an investment market driven by cap rates that should get you what you need to know. But if you are a cash investor you may be better suited to value your property based on the formula for Cash on Cash;
Cash Flow Before Taxes / Cash Invested = Return of Cash on Cash
Knowing the different formulations and when to use them is a big part of the work in being a rental property owner.
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