How to value income property...?

General Real Estate Investing
1

I have 3 acres in a rural, but convenient area of South Mississippi. I want to build 4 small, 2 bed log cabins to rent out on a 1 year agreement at $700/month each.

My question is… Once the cabins are built and rented, how do I value the property to sell it as investment property?

I assume I add the market value of the land and 4 cabins, but how do I factor in the fact that it is income-producing property and the agreement is for 1 year at $700/month each?

Thanks.

Loo

2

One popular method uses a 10% Capitalization Rate.

Value = NOI/CapRate = NOI/10% = NOI x 10

Start by pretending you own the property free and clear. Debt Service is not a factor in calculation of value with this approach. Take all your annual rental operating expenses plus all the annual costs of ownership for your free and clear property and subtract that from your annual rental income at 100% occupancy. The answer will be your Net Operating Income (NOI). Then multiply the NOI by 10. The result is the value of your property.

Please note that this approach is just a quick and dirty estimator. The value of single family dwellings is going to be determined by comparable sales of similar properties in your area. If you already know the market value of the land and cabins, then you already know the value of the property.