Value of Rental Income

[Todd Franklin]

I am considering selling out my % of a small strip mall. I am a partner with cousins, this is an inherited property.

I have a decent handle on the property value.
How do I incorporate the value of rental income into the selling price?
Is there a simple rule of thumb as to what to add to the appraised value of the property to accomplish this, or am I wrong in assuming that this $figure should be added?

Thank you.

[Mary Cronin]

It's not added in - value is based on net income/cap rate with the cap rate being the expected rate of return - low in stable high value areas and high in more risky areas -

eg
100000 net income at 6% cap rate = $1.66...M
100000 net income at 14% cap rate = $714k

Same income, different risks, different values. The formula is:

Value = NOI/cap rate

Bear in mind that most investors need the following:

8% cap rate minimum
12% cash on cash return (COCR)
1.6 debt service coverage ratio (net income/annual debt payments) if they are going to finance purchase.