Beyond the NOI-based appraisal – Sophisticated valuation methods can lead to smarter investments

Description

Abstract: One of the simplest and most common methods of establishing real estate value involves taking one year’s net operating income (NOI) and dividing it by an appropriate capitalization rate to determine the sales price or property value. But questions regarding the accuracy of NOI numbers can make this a less than reliable method of valuation. Buyers need to independently verify seller numbers and to analyze values generated by more sophisticated analytical tools, such as the net present value (NPV) method or the internal rate of return (IRR) method.