There are more than one methods of valuing your property even if it has negative returns.
Before I begin, note that here, what is important that you have returns. They are negative because your expenses are in excess of the revenue its generates. Let us examine the most commonly used three methods.
1. Cash-on-Cash Return -- Cash-on-cash return is calculated by taking your estimated, or proforma, cash flows and dividing them by the amount of cash equity you invest to purchase the property. For example, if I invested $40,000 into a property and earned $4,000 per year in free cash flow, that’s a 10 percent cash-on-cash return.
2. The second method concentrates on Internal rate of return
and net present value. Both take into account the time value of money theory and are little complicated. Both of these calculate a rate of return based heavily on a future sale of the property and an estimated price that the property sale will generate. These rely heavily on future projections.
3. The other
used method is Gross rents multiplier. There is also gross rents multiplier (GRM), which takes the property price and divides it by the gross rents the property can generate. So if the price is $100,000 and the annual rental income is $10,000, the GRM is 10. You would compare this to other properties in the area to see how they fare against those. While these may be a good rule of thumb, they don’t show a true picture. Different properties can have different expenses, and GRM does not account for those differences.HAVING said this,
cash on cash based returns is the most widely used method.
I hope this helps...
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