Gross Income Multiplier article
How is the Gross Income Multiplier calculated for commercial real estate investments and developments? What are the factors that the Gross Income Multiplier takes into consideration when shown in a proforma income statement, and what is ignored? Why is the Gross Income Multiplier useful for investment real estate? These are the questions that are explored using the Proforma Example in this article.
Start a 14 Day Free Trial
|
|
Video Title: Learn about the Gross Income Multiplier
Video Publication_Date: Tuesday, May 21, 2024
Video Duration: 0:52
Video Description:
The topic for this commercial real estate investment analysis video is Gross Income Multiplier. Throughout the video planEASe Software is used to illustrate Gross Income Multiplier. The video does not use the current Proforma Example, but all the factors that the Gross Income Multiplier are sensitive to are covered.
|
| 2010 | 2011 | 2012 | 2013 | 2014 | 2015 |
| Total Gross Income | $365,472 | $372,443 | $370,410 | $376,040 | $384,217 | $414,321 |
| Sale Value | $3,329,006 | $3,591,128 | $3,800,275 | $3,698,723 | $3,795,175 | $3,560,371 |
| Gross Income Multiple | 9.11 | 9.64 | 10.26 | 9.84 | 9.88 | 8.59 |
In this case the 2011 Gross Income Multiplier was calculated by: | 2011 Sale Value | $3,591,128 |
| divided by 2011 Gross Income (No Vacancy) | $372,443 |
| equals the 2011 Gross Income Multiplier | 9.64 |
Considers:
Scheduled Income (Gross Income), Asking Price
Ignores:
Vacancies (now and future), Lease terms, Revenue Growth , Rent Control, Expenses,
Expense Growth, Property Taxes, Property Tax Growth, Deferred Maintenance, Debt
Amount (Ratio), Interest Rate, Interest Rate Changes, Payment Changes, Prepayment
Penalties, Depreciation, Capital Expenditures, Income Taxes, $25,000 Exemption,
Passive Losses, Appreciation, Capital Gains Tax
... and a lot of other things
Why is Gross Income Multiplier useful?
The Gross Income Multiplier is a popular measure in commercial real estate investment books, probably because it is so simple. All you really need is some way of estimating what a property potentially could produce in gross income. Since it totally ignores expenses and vacancies, it is only really useful for investments where vacancies and expenses don't matter, such as true Triple-Net (NNN) long term leased properties.
What is the Gross Income Multiplier Sensitive to:
Gross Scheduled Income (Potential with No Vacancy), and Price.
The Gross Income Multiplier is shown in these planEASe Reports:
Written by
Michael Feakins, CCIM
of planEASe Software