This is used as a secondary method, though, and can tell you if maybe you should be building instead of buying. [...] The rate of return investors in a given area expect gives you the capitalization rate, or “cap rate” for the area. Take net income before debt-service, and divide by the “cap rate:” It’s a simple formula. Income, then, is what is used to determine value. Below is a somewhat simplified explanation. One thing smart investors do when buying, is to separate out income from vending machines and laundry machines.
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