Financing & Value Indicators

Click the Financing & Value Indicators tab to access this section. Note that a value or price other than the DCF value can be analyzed. Simply check that option at the top-right section of the screen and enter a user-defined amount.  

Financing terms are entered directly on the sheet. Cells that accept user-input have dark blue text. The following are user-defined inputs:

First Mortgage
  • Interest Rate
  • Mortgage Term (Minimum is length of the holding period)
  • Points
  • Closing Costs
  • Loan to Value Ratio (This is used to calculate the first mortgage amount, it cannot be entered directly)

Second Mortgage
  • Interest Rate
  • Loan Amount (This differs from the first mortgage which can only be calculated by the loan to value ratio.)
  • Mortgage Term (Minimum is length of the holding period)
  • Points
  • Closing Costs
For market based mortgage terms, check out RealtyRates at . 

Value Indicators

Indicators are located below the mortgage input cells and the graph. You can access this area by clicking the Indicators link.

Several factors and indicators are listed in this section.
  • Net Operating Income
  • Debt Service
  • Equity Dividend
  • Equity Dividend Rate
  • Debt Coverage Ratio
  • Internal Rate of Return
  • Capitalization Rates
  • Value Per Unit
  • Value Per Square Foot
Overall Value & Unit Values: Based on your market research, you should have a sense of whether the value and unit/SF values are in-line with the market. The value should withstand a common sense review, and be consistent with other properties. 

Be aware however, that every property has unique income/physical characteristics that can skew the value. For example, a particularly ornate structure may not generate any more income than a plain building, rendering the expensive construction obsolete in the investment market place. Further, sometimes plain buildings, by virtue of their simplicity, low maintenance, tax and insurance expenses, are more valuable from an investment standpoint than one might think initially. 

Capitalization Rates: The capitalization rate (Sale Price / NOI = Capitalization Rate) should be consistent with capitalization rate shown be sales and listings of similar and competitive properties. Properties with low risk and strong appreciation expectations will show lower capitalization rates, while higher risk properties will show higher capitalization rates. 

Importantly, when analyzing capitalization rates from the market, care should be taken to ensure that the income and expense structure used to develop the NOI for the comparable is similar to that of the subject. For example, if structural reserves are included in the subject's expenses, but not in the comparable's expense figures, the comparable would show a (misleading) higher NOI and capitalization rate. Thus, in this case it would be appropriate to deduct an amount for structural reserves from the comparable's NOI prior to calculating the capitalization rate.

Equity Dividends and Rates: Equity dividends and rates reflect the annual return on the original amount invested. This is the amount of cash the investor keeps after all expenses and debt service (if any) are paid. This is an important figure and should pass a common sense test of whether it is enough to motivate the investor to undertake the investment.  

The debt coverage ratio measures the amount by which net income exceeds annual debt service. Most lenders look for a minimum of 1.1 (rare) to 1.2 to 1.25 (typical). DCRs vary by property type, market conditions and lender practices.

Internal Rate of Return (IRR): This is the yield earned by the investor on the funds invested, including the initial down payment, closing costs and all subsequent cash flows, positive and negative. Because this rate is an all-inclusive indicator of the investment's performance, it is perhaps the MOST important indicator to analyze. It must be adequate to motivate most investors, in light of the risk characteristics of the property.