As second-year MBA students chatter at cocktail parties, one of the major topics of discussion is who landed investment banking offers. Although the reputation of investment banking has taken a beating following the 2008 financial crisis, corporate finance jobs are still an incredible way to gain valuable business experience and earn a handsome paycheck.

Since the financial crisis, many perceive investment banking to have changed forever, and in many ways, it has. But there will still be IPOs, mergers and leveraged buyouts and a need to raise capital to grow businesses, and that means there will be jobs for those who have what it takes to succeed in corporate finance.

For the MBA, the typical entry job into the corporate finance department is an associate position. It’s a demanding slot, but it’s one rung above an analyst position, pays well and leads to great client exposure and business experience. So what will it take for an MBA to secure an associate position?

From B-School to I-Banking

Yes, corporate finance looks for bright individuals who can clearly articulate business insights and who will dazzle clients with social skills. But at the associate level, investment banks are also looking for MBAs that have strong finance experience and are driven and disciplined.

In terms of experience, bankers are ideally looking for candidates with previous corporate finance experience. Such experience could be a pre-MBA stint as an analyst or a summer internship with an investment bank. Firms also tend to value candidates with Big Four accounting experience, commercial banking experience or other positions that require significant exposure to finance and accounting.

Similar to the analyst hiring process, interviews for associate positions can be intense, and the ante is upped for candidates who have completed graduate programs and will be expected to work more closely with clients. Associate candidates should put in several hours of practice interviews and be prepared for all sorts of questions. For those who have already gone through the interview process as an analyst, the interview won’t be as intimidating (otherwise, get ready!).

Interviews may involve several rounds, culminating in a “super Saturday” round in which the top candidates meet with all the bankers at the firm for another round of interviews and socializing — giving the firm an opportunity to see which candidates are the best cultural fit.

As with most interviews, candidates must be prepared to impress the firm with their intellect and skills, but more importantly, they must prove that they are a likeable person that will work well with the firm’s employees. For candidates who receive offers, it’s time to get ready for life as an investment banking associate.

The Corporate Finance Quarterback

There’s a good reason why associates earn a healthy salary and a large bonus each year. In short, they are the quarterbacks of the corporate finance office. They may have analysts to whom they can assign projects, but they have to juggle multiple projects from multiple bankers with complicated schedules. Managing the analysts is no easy task either, as each of them are pushed to the max with their project workloads.

Like analysts, associates may start their day at 8 am and not finish it until 1 or 2am — and sometimes may not go home at all. They come in on the weekend to stay on top of projects and ensure that documents and presentations are completed with enough time for thorough editing. Associates usually put in as much time as analysts — often 80 to 100 hours a week at New York firms or 60 to 80 hours at firms off of Wall Street.

The Deal Cycle

Associates play a key operational role in the deal cycle of the corporate finance department. In the deal cycle, investment bankers — the vice presidents and managing directors — will either approach or be approached by companies with ideas for potential transactions. These deals may include IPOs, follow-on offerings, private placements, mergers and acquisitions.

Bankers will set up a meeting with the company called a pitch, in which they pitch the services of the firm to the company and present their analysis of the feasibility of the potential transaction.

At the pitch, the bankers will present the potential client with a pitch book — usually a hard-copy PowerPoint presentation that describes the credentials of the bank along with a detailed analysis of the market in which the company operates and often a valuation of the company itself.

If the company is impressed with the firm and interested in pursuing a deal, then it will engage the firm to execute the transaction. Depending on the type of transaction and the conditions of the market, these transactions can take anywhere from a few months to a few years to complete. At any point in time, bankers can be working on several pitches and deals all at once.

What do Associates Do?

Analysts tend to work on the front end of the deal cycle, working on pitch books for the bankers. Associates also work on the front end of the deal cycle, overseeing and editing the work of analysts in the preparation of pitchbooks.

But associates also assist in the execution of deals — preparing sales documents for various transactions, editing prospectuses and even discussing due diligence materials with potential purchasers in M&A and other transactions. As associates gain the respect of senior bankers, they may get to accompany the senior bankers on pitches and become more involved in business development.

A first-year associate may initially perform many of the same analyses as analysts — comps, DCFs, LBO, etc. — but associates eventually transition to more senior level work. Rather than cranking through the template financial models that analysts work with, some may redesign these models or build models specifically for particular deals.

Much of the legwork that associates perform involves spreading client financials to share with potential investors or drafting private information memoranda for M&A transactions or private placements. Because of the nature of this work, associates often work closely with clients, speaking with CEOs, CFOs and other members of the management team to assemble relevant information for sales documents.

Associates quickly learn to charm clients while at the same time leaning on them to provide timely, detailed information for sales documents. Corporate finance transactions can be extremely stressful on clients (and associates), and associates must be able to navigate tough situations where clients have become fatigued and emotional by the deal process.

The Perks of Being an Associate

Despite all the pressure and long hours, there are some payoffs for associates who stick around. Depending on the firm, starting salaries for associates can range from 0k to 0k, but when you add in bonuses that are often north of 50%, total compensation can range from 0k to 0k.

Many firms have a policy that when employees have to stay at work past 7pm, they get their dinner paid for. Like analysts, associates stay past 7pm nearly every night, so free dinners can quickly add up to a lot of money.

Other perks often include reimbursement for cell phone or blackberry bills, free cab rides for late trips home and the occasional opportunity to celebrate with other bankers at a lavish closing dinner.

Career Progression

If an associate chooses to leave the investment banking world, their experience can often be leveraged to move into positions that would normally require more experience. Investment banking is incredibly rigorous work with associates wracking up double the hours of the average worker and performing their work at an intensity level that is among the highest in the business world. It is no wonder that they have an easy time excelling in other careers.

For associates who hang around, two or three years of experience usually leads to a promotion to a vice president position. Hours for vice presidents may be a bit lower, but travel is a good bit more.

A high-performing vice president can make the jump to senior vice president or managing director after several years. Although the hours and seniority of these positions may be slightly more appealing than an associate position (senior bankers can still be found at the office on many weekends), they also bear much more responsibility for bringing in new business.

Like any career, anyone considering an associate position at an investment bank should look beyond just pay and prestige and think about whether or not they will enjoy the work. Some of the most valuable benefits investment banking has to offer are the incredible experiences of working with companies during pivotal times — and the character that those experiences build.

Try a practice interview simulation.

In this article we’ll consider why serious real estate investors looking to make the best return possible on their real estate investments use real estate investment software to evaluate investment opportunities.

1) It’s fast. Good real estate investing software makes it possible to analyze cash flows, rates of return, and profitability of rental properties in minutes. This allows individual investors to quickly and easily collect the data required for smart decision-making.

2) It’s precise. Good investment evaluation software makes accurate calculations for a wide-range of returns and measures deemed crucial to sound real estate analysis. Faulty math is the last thing an analyst should have to worry about.

3) The reports are informative. Good real estate investment software creates professional-quality reports investors can confidently pass on to colleagues, partners, and lenders.

4) It knows what data is required. Quality investment software provides specially designed forms that gather the appropriate facts and figures about a property. This is particularly helpful to investors with little or no real estate analysis experience because they just fill in the forms and print.

5) It keeps the seller’s data honest. Investors who have the ability to run the numbers themselves prevent anyone from making an unrealistic presentation of the property and perhaps “slipping one” by.

6) It’s inexpensive. Good realestate investment software does not have to cost an arm and a leg. Anyone can create top-notch real estate analysis presentations forever for just a few hundred dollars.

Okay, now let’s consider the alternative.

1) You can create your own spreadsheet. Excel makes it possible for anyone to mimic investing software solutions. But it takes time (lots of time) to develop the reports and calculations provided in good real estate investment software. You should ask yourself whether you are inept enough about real estate investing and Excel before you get started. Plus, remember that your goal is make a profit on investment properties and not to shave a few bucks off your analysis presentations.

2) You can rely on rules of thumb. It’s easy to calculate a property’s cap rate or gross rent multiplier. But what about cash-on-cash return, cash flow after tax, internal rate of return, and mortgage amortization? Bear in mind that you are planning to make a huge property investment, so you should rely on something more meaningful than on simple calculations you can do in your head.

3) You can accept the seller’s data. But it’s never a good idea to accept property data point blank because it leaves too much room for others to embellish reality. You must always verify the numbers you are presented for any investment opportunity so you can be sure that they comply with your real estate investing plan.

Once you’re ready to invest in good real estate investment software you’ve got to know what to look for. So here are a few suggestions.

1) Foremost, be sure that the software is user-friendly–that you know what to do from the moment you open it. If not, be sure you have a number you can call for tech support.

2) Preview the reports. Are they easy to read? Do they contain concise data on the cash flows, rates of return, and profitability you need to make intelligent investment decisions? Are they professional quality?

3) Consider what rates of return you desire. For example, are you interested only in suitable returns calculated without consideration for the elements of tax shelter, or would you prefer full consideration of tax shelter? If so, then look for real estate investment software that includes calculations for things such as depreciation, mortgage interest, amortization of loan points, and cash flow after tax.

4) Would you like both analysis and marketing presentations? If so, then look for a software solution that will create an Executive Summary or Marketing Package in addition to an APOD, Proforma Income Statement, and Rent Roll.

You get the idea.

The important thing is to realize that real estate investing is a business and real estate investment software is a tool that will help you to grow that business wisely. And in the same way that serious investors have come to rely on good real estate investment software to help them make smart investment property decisions, so should you.

Investment advisors are professionals in the field of marketing, economy, business investments and all other aspects involving finances. They are knowledgeable in these areas and are often sought for their specializations. If you are planning to invest in business, real estate, car, insurances, mutual funds, you may need the expertise of an advisor.

Advisors are more than just financial planners, although they also possess the skills and knowledge of planners. First, they should know about your financial goals. This involves knowing when you should use your money, and how you will be using the money.

The advisors will study and analyze the market and other factors related to the economy, and list down the challenges, issues and problems that may arise. The investment advisors will include everything in their documented report, along with the recommendation or course of action to be taken and when to be taken.

They are also expected to provide updates on the areas of interests of their clients. Because they serve as an advisor, they should also at times, be informed of other plans that can affect the financial goals or future investments. Examples of such incidences are divorce, marriage or having children.

In order to give the best advice for financial investments and goals, you should provide your advisors access to personal information like assets, liabilities, tolerance for risks, skills including educational and work experience background. The advisors will use such information to come up with the best plan to make your goal a reality, and to ensure that the said goal will yield lucrative results.

To put it simply, you can expect from your advisor substantial information, such as what to invest in-whether to buy stocks or mutual funds. They will advise you on whether you should use index funds or active fund managers, other investments to use within your retirement accounts, and the risks associated with each investment.

You can also rely on them to know the expected rate of returns from your portfolio, which best investments to own in non-retirement accounts, the types of taxable income your financial investments will produce, and the means to rearrange investments to mitigate taxable income.

The investment advisors work with institutions such as the stock market, banks, insurance companies, mutual and pension management companies and security firms in order to provide you satisfactory answers.

Often, advisors may have earned a degree in Accounting, Marketing, Business Management, Banking and Finance, and economics in order to become an expert and be qualified to take the position of an advisor.

However, there are cases that are exceptional. Many of the famous and successful investment advisors owe it to their job experience, which tested and proved their knack in financial analysis.

Even with the stock market up near pre-September 2008 levels, sound stock market investing advice is never a waste of time. The Schannep Timing Indicator and TheDowTheory stock market investing advice newsletter always provide timely information, no matter what the markets are doing. A subscription to The Dow Theory Newsletter nets you stock market investing advice you won’t find anywhere else online.

Jack Schannep, the author of The Dow Theory Newsletter has had a long and illustrious career offering practical stock market investing advice. His military beginnings at West Point, his career as an aviator and academic instructor in the Air Force gave him the knowledge and discipline he brought to his second successful career as a stock broker with Dean Witter in Phoenix Arizona. His interest in stock market timing and the famous Dow theorist, Robert Rhea, motivated him to study the markets, and offer stock market investing advice based on specific timing factors, and the principles laid out in the original Dow Theory. Schannep’s stock market investing advice has a large and diverse following, and he keeps writing out newsletters, even well into his retirement.

The Schannep Timing Indicator stock market investing advice believes certain factors must exist in order for conditions to dictate a bull or bear market. Stock market investing advice will always tell the investor that trends must be recognized and investigated, rather than taking advantage of market highs and lows. Trend information is much more valuable stock market investing advice because it teaches the investor to ride out the bull and staying out of bear markets, rather than jumping in or jumping out too quickly. Schannep believes his time at Dean Witter – now Morgan Stanley – gave him the insight to offer stock market investing advice, because Dean Witter believed, “Timing – knowing when to buy and when to sell – is one of the most important factors in any investment decision.” Combining data made available in the late 1960s, with the original Dow theories dating back to the early 20th century, Schannep has been able to accurately forecast market activity, making his stock market investing advice some of the most valuable information available to investors.

Stock market investing advice comes at you from all different places. Today, you no longer get it from just The Wall Street Journal. Television, the Internet, and all sorts of alternative outlets offer stock market investing advice, but much of it is not accurate. When you take proven theories, and combine them with decades of experience, you get stock market investing advice that’s worth its weight in gold. A man like Jack Schannep does not have tricks up his sleeves; only hard work, knowledge, and in-depth study of prevailing market factors can create the kind of stock market investing advice that will work for all types of investors. You don’t have to be a financial industry insider to benefit from Schannep’s stock market investing advice; he makes it available to everyone, online.

To learn how to get your hands on Jack Schannep’s stock market investing advice, please visit Thedowtheory. Subscribe to Schannep’s newsletter, and learn how to make investing work for you, without any tricks or shortcuts.

The duty of your asset management company is undoubtedly to make a proper management of your business’ reserves – better known as assets – but there are several other things that the asset management company must look into. Let us look into the duties that an asset management company is supposed to perform:

- The first and primary duty is to keep and maintain a record of all the physical assets of the client’s company. The most obvious assets to look into are the property and the finance of the company, but they must also look into investments, stocks, insurance policies, and anything else that constitutes money.

- Asset management companies will also look into the bookkeeping affairs of the company. They will maintain the records for accounts, and will provide updated records in regular timeframes. They are sometimes expected to perform additional tasks that the company requires during taxation, such as filing of returns.

- Inventory maintenance is also a responsibility of your asset management company. They have to keep all records of the inventory in stock, and even suggest limits for stocking up on them. They can alert the company whenever the raw materials are running low. Apart from the raw materials, asset management companies should also take care of the inventories of all supplies, devices and equipment used by the company for their business.

- Asset management companies must maintain a list of all the suppliers to the company. In most cases, it is their duty to themselves communicate with the suppliers and stock up on raw materials for the company. Sometimes, they will also undertake to communicate with the wholesalers who take the products from the company for selling. That means, asset management companies would undertake a company’s entire buying and selling process, if they are contracted for the service at the outset.

- One very important service the asset management company must provide is investment advice. They must carefully instruct their clients how to make their investments properly, so that their financial assets show an improvement.

- In some cases, asset management companies can also look after the software and other knowledge-based assets of the company. In companies that deal with software, the job of the asset management company would be to manage the knowledge assets, which may not be in a physical form. They will also be expected to manage the IT resources the company operates with.

In this manner, there are several duties your asset management company must perform. Of course, you can decide in advance what kind of duties you really require, so that you don’t end up paying for more. Also, you must draw proper contracts so that the mutually decided clauses are adhered to.

Before going further into the articles, let me give you a brief idea about Portfolio Management. Portfolio management is more than running multiple projects. Each portfolio needs to be assessed in terms of its\’business value and adherence to strategy. Basically, a portfolio is designed to achieve a defined business objective or benefit.

The three-factor model, also known as the Fama and French three-factor model, and was developed in 1993 by Eugene Fama and Kenneth French. This three-factor model is widely canvassed by fund managers and investors to analyze and return consociated market/instruments to make the highest return for the risk taken.

CAPM (Capability Asset Pricing Model) model is the original model of the three-factor model. Hence, it is necessary to understand this model, for a good understanding of the three-factor model. The formula of CAPM is: R= Rf+ beta * (Rm -Rf), where R is the return, Rf is the return rate of risk-free investments, beta is the risk associated with a security market, and Rm is the return rate expected from the market. CAPM model successfully explains around 80% of returns.

The formula of three-factor model is: R= Rf + beta* (Rm-Rf) + Bs*SMB+ Bv* HML.SMB is called as the Small Minus Gap, and HML is known as \”High Minus Low\”. Bs and Bv are beta corresponding to small cap and large cap portfolios having values of either 0 or 1.

The idea behind this model is that, value and small cap stocks often outperform large- cap stocks. The potential reasons for this could be a higher reward for making up higher risk taken and early mispricing of equities. Fundamentally small-cap companies often show better growth and this is reflected on their stock prices.

This model has helped a number of investors and fund mangers to calculate their risks and profits, thereby radiating their portfolio management and belittling risk strategies.

The following real estate investment ideas revolve around the general theme of gaining some special advantage. This is more necessary that normal at the moment (2009) because it is unclear whether home values will continue to fall. Having the right approach limits the risk inherent in falling prices and slow sales times.

1. Look For Special Infrastructure Situations

Infrastructure changes can radically affect prices of homes. Transportation issues in particular matter when evaluating the future value of a property. I recently read a story about an investor who bought houses in an area soon to be serviced by a new commuter rail line into a large city. The value of real estate there went up 50% in about a year.

Look for areas where new roads or train or bus lines will soon be opening? This could be an opportunity. Also, as a precaution, before you make a real estate investment, check to see if there are there any train or bus routes that will be closing soon. This could drive property values down.

2. Imagine Worst-Case Scenarios

Think of all possible problems when looking at a real estate investment. The reason for this isn’t just to help you decide if it is worth the risk, but also so you can make contingency plans that take everything into account. For example, what if the market softens by the time you finish fixing up a property? If you can’t sell at a decent price, can you rent the house for a year or two until conditions are better for selling?

Have some idea of how you can deal with any potential problem. Fortunately real estate is one of the more flexible investments. A given house might be sold, rented, leased with an option to buy, sold with easy seller financing, rented by the room, made into a duplex, or lived in until prices firm up. Have a few options available to you just in case.

3. Try Fast Fixer-Uppers

There is a lot to be said for acting fast when markets are uncertain. Real estate is always expensive to hold onto in any case, and speed reduces those costs if you are buying and selling a fixer upper. More than that though, selling as quickly as possible becomes more important if property values are still falling in the area. With that in mind, here are a few real estate investment ideas for fast flipping of houses.

- Have a plan in place as soon as you make the offer.

- Make the offer contingent on a quick closing if possible.

- Arrange for contractors to start the day after closing.

- Line up a real estate agent and have a marketing plan in place before the home is even ready.

- List the property for sale and start advertising a few days before the project is complete.

- Price the home slightly below the market for a faster sale.

Real estate investment has some risk involved at all times. But these are especially tough times, so look for ideas that reduce the risk and give you some special advantages.

If you are a landlord or property manager, knowing your rental property tax deductions is vital for cutting your taxes to the minimum. Find out how to enjoy lower landlord taxes and boost your profit margins right now.

Rental property tax deductions are basically rental expenses that you are allowed to deduct when calculating your rental property taxes. They are crucial because they will reduce your total amount of property income that is taxable.

To cut down your landlord taxes, you can simply include every possible tax deductions that you are allowed to use. The following are the common and important deductions that a rental property owner can enjoy:

1. The Depreciation Value of Your Rental Property

When you buy a new rental property, you cannot claim the full amount that you paid for it as expenses right away. Instead your property is slowly depreciated over a long period of time.

Depending on the country that you live in, most depreciation periods for residential property range from 20 to 30 years. Home owners are usually not allowed to claim depreciation as tax deductions so you will not be able to apply this deduction to your own home.

2. Insurance Premiums Related to Your Rental Property

Being a landlord means that you will usually have to buy a series of insurance polices such as building insurance, home contents insurance and landlord liability insurance.

You will be able to treat the premiums that you fork out for all your landlord insurance policies as tax deductions. If you employ people to manage your rental property, you will be able to claim the premium for their worker insurance as a rental property tax deduction as well.

3. Interest on the Mortgage Payments for Your Rental Property

Unless you are awfully rich, you would have taken a loan like every other landlord to pay for your rental property. Fortunately the interest charged by your bank or lender is counted as rental property tax deductions as well.

4. Repair Bills for Fixing and Maintaining Your Rental Property

The money that you fork out to maintain your rental property in habitable condition is also tax deductible. This refers to any repairs or maintenance that are conducted to make sure that your rental property meets your local health and safety housing standards.

However you must know that any home improvements that you carry out for the purpose of boosting the values of your rental property cannot be considered as rental property tax deductions.

If you hire a contractor or repairman for repairs, make sure you ask them to give you a receipt with the property costs and type of repair work stated on it.

5. Travelling Costs for Managing Your Rental Property

Any travelling expenses that you rake up for rental activities such as rent collection and property repairs are also tax deductible. You are usually allowed to deduct both your gasoline costs and vehicle’s maintenance bills.

If you own rental properties abroad and you travel overseas for real estate activities, you may even to claim your airplane tickets, hotel stays and travelling fares as rental property tax deductions.

The tax agencies in most countries will monitor your tax claims for overseas travel quite closely so be sure not to abuse the system and keep proper written records of your spending such as receipts and bills.

Teo Zhenjie has been showing landlords how to manage their tenants and rental properties effectively on Propertydo http://www.propertydo.com/ – To learn more important tips on rental property tax deductions, visit his website today for step-by-step real estate guides, free resources and forms.

Annuity calculators are tools that are widely used for calculating annuities in case of retirement investing. These tools are becoming popular thorough the time and are highly adopted to calculate financial privileges offered by insurance carriers and insurance brokers.

Where to find annuity calculators?

Most people coveting to calculate their annuity do not known how to get access to annuity calculators. It should be known that finding an annuity calculation tool is not a difficult task. Through any prominent search engine and utilization of relevant and appropriate keyword, you can get access to such calculating tools. There are numerous sites that offer you annuity calculation tool. There are insurance carriers who intend to offer assistance to their customer and new insurance seekers; to meet this objective these insurance companies operating online also offer annuity calculators.      

Benefits of online annuity calculators:

One can also try to calculate annuity finance on his own, as it is not mandatory to use an online annuity calculation tool. Since, you will be performing mathematical calculations using few numbers you should not find it default to reach to the outcome. However, online annuity calculation tools are ideal, as this significantly eliminate the odds of error that may occur and moreover saves some time for you. It is always advised to use a computer or internet based annuity calculator as it may reduce efforts as you may need to modify figure continually while you try to evaluate you annuity. Most internet based annuity calculators also offer you an opportunity to save the outcome that you obtain.    

Things to remember while selecting annuity calculator:

Conventional annuity calculators may not allow you to compare different offers. Most people while selecting an annuity calculation tool consider using a tool that allows them to compare different offers provided to them. There are numerous types of annuities; hence you require a competent tool to calculate these annuities which bears different rules and policies.  You may have to select an annuity calculator which allows you to calculate different kinds of annuities such as immediate annuity, deferred annuity, fixed annuity, variable annuity etc.

You may come across some insurance brokers’ web portals that may allow you to evaluate and compare the income that you may obtain from equity indexed annuities, CD annuities etc. There are also insurance carriers’ sites which offer you an opportunity to compare over hundred different kinds of fixed annuities. While distinguishing your annuities, one important thing you need to make sure is that you are able to find out precisely how you can you prepare for an easy retirement by tax delays and secured investments.

Using annuity calculators:

Using an online annuity calculation tools is considerably easy. There are annuity tools available over internet which allows you to calculate the tool just by entering required figures in the empty fields. These calculators help you determine the outcome based on the set formulas which are used by officials to calculate annuities. Inevitably, online annuity calculators are ideal option for you to calculate your annuity if you require instant outcome.  

Cap rate and GRM (gross rent multiplier) are popular real estate investing measures regularly used by real estate agents and individual investors seeking to determine whether a rental property is, or is not, priced correctly and maybe might be a good investment opportunity.

Both measures only provide an estimate of rental property value, and alone neither provide a true picture of a property’s profitability. But they can provide a quick first-glance look at a property’s ability to pay its own way and because they are easy to compute, they are a popular way to determine whether a property is in line with similar, other recently sold or listed rental properties.

As a result, cap rate and GRM are used by sellers to set a selling price for rental properties, and by buyers trying to determine what price to offer.

So which is better? At the end of the day, which method better estimates a rental property’s value, best measures the property’s financial performance, and most helps in an investment decision?

In this article, we’ll consider both, and then decide.

Capitalization Rate

Cap rate measures the relationship between a property’s net operating income and its price by expressing the percentage rate a property’s net operating income is to its value (or sale price), and as is a rule of thumb, whether a property has the ability to pay its own way.

Here’s the idea. Net operating income (NOI) is all income after operating expenses thereby representing the amount of money generated by the property that is available to pay the mortgage (the reason lenders look closely at it when making a loan). In this case, cap rate reveals what percent of sale price these available funds are.

The formula is straightforward. To estimate a rental property’s value, multiply the property’s NOI by whatever capitalization rate you deem appropriate. For example, if similar properties are selling at a 6.0% cap rate and you deem that suitable, multiply the subject property’s net operating income by 6.0 to arrive at its market value.

The disadvantage of this method is that it’s sometimes difficult to confirm a sold property’s actual operating expenses and therefore difficult to determine the actual (not merely the published) rate it sold for.

There is no such thing as a universal cap rate. It depends on individual market areas, what might make one rental income property look like a steal in one city or state at 6%, might not get a second look in another.

Gross Rent Multiplier

The GRM method (expressed as a number) measures the ratio between a rental property’s gross scheduled income (GSI) and its price.

Its advantage is that it is very easy to calculate. You don’t even need a computer to compute it because you can probably do it in your head. Divide a property’s selling price by its GSI to arrive at a gross rent multiplier, and multiply a property’s GSI by whatever GRM you deem appropriate to arrive at an estimate of the property’s value.

For example, if similar income properties have recently sold at around a 5.0 GRM and your intention is to arrive at an estimated market value for a property generating a gross scheduled income of ,000, you would multiply that amount by 5.0 to determine its value.

The disadvantage of this method is that it ignores occupancy levels and operating expenses, both of which are important indicators regarding the overall performance of a rental property and required for sound real estate investing decision-making.

As with cap rates, there is no universally correct number for GRM because it is market-driven. It would surprise me, however, to see a number lower than 4.0 or higher than 12.0 and if so, strongly recommend that you dig deeper into the numbers that produced those results. Okay, so which method is the best way to determine a rental property’s value?

Though gross rent multiplier is certainly the easier method to calculate, and can serve as a useful precursor to a serious property analysis, most analysts would agree that the more reliable way to determine rental property value is with the cap rate method.

Naturally, you should never rely on capitalization rate alone to provide a true picture of a property’s profitability or make a real estate investment decision without correctly computing all the numbers, rates of return, and cash flow scenarios for yourself.

Remember, numbers can be manipulated. When told how great a buy an income property is based upon its cap rate, be sure to reconstruct your own raw data to insure that all is revealed and nothing is concealed before you actively pursue the real estate investment further.