Here’s a fast trick that many experienced investors use to estimate a potential value for an income-generating property. Multiply the annual net operating income (NOI) by ten; that will give you a very rough estimate value based on income for the property. Of course, this doesn’t work for hot or depressed areas.
The key in such a method is determining the net operating income. We begin with the gross income, which includes all revenues generated by the property. Gross income would include rent, laundry income, late fees and parking charges. From this gross income, we would subtract the operating expenses.
The NOI is the gross income minus the operating expenses (discussed above). Again, the NOI does not include mortgage and other debt servicing payments in its calculation. As noted above, the NOI also does not take into account capital improvements and acquisition costs. The operative term is “operating”: the net operating income consists of the gross operating income minus the operating expenses.