FORMULA : MEMORIZE THRU PRACTICE, PRACTICE, PRACTICE

1. SELLING PRICE / EFFECTIVE GROSS INCOME = GIM

2. SELLING PRICE / EFFECTIVE GROSS MO. RENTAL = GRM

3. NET OPERATING INCOME / SELLING PRICE = OAR

4. NET OPERATING INCOME / VALUE = OAR

5. RECAPTURE VALUE / SELLING PRICE = RECAP. RATE

 RECAPTURE VALUE = BLDG VALUE / REM. USEFUL LIFE

 RECAPTURE VALUE = BLDG VALUE X RECAPTURE RATE
 RECAPTURE RATE = 100% / REM. USEFUL LIFE BLDG.

PURE INCOME TO LAND AND BLDG / SELLING PRICE = INTEREST RATE

6. NOI / RATE = VALUE

7. RATE X VALUE = INCOME

8. NOI / VALUE = RATE

9. LAND INCOME / INTEREST RATE = LAND VALUE

10. BUILDING INCOME / OVERALL RATE = BLDG. VALUE

11. LAND AND BLDG. INCOME / OVERALL RATE = L & B VALUE

12. OPERATING EXPENSE / EGI = OPERATING EXPENSE RATIO

13. NOI / EGI = NOI RATIO

14. OPERATING EXP + DEBT SERVICE / PGI = BREAK EVEN RATIO

15. NOI LESS DEBT SERVICE = NET CASH FLOW

16. NET CASH FLOW / STOCKHOLDERS EQUITY = EQUITY DIV. RATE

16a. ORIGINAL LOAN X MORTGAGE CONSTANT = DEBT SERVICE

16b. DEBT SERVICE / ORIGINAL LOAN = MORTGAGE CONSTANT

17. FORMULA FOR BAND OF INVESTMENT METHOD

BANK RATIO X MORTGAGE CONSTANT = WEIGHTED RATE

INVESTORS RATIO X EQUITY DIV. RATE = WEIGHTED RATE

= OAR

OR

LAND RATE X INTEREST RATE = WEIGHTED RATE

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 BLDG RATE X BLDG. CAP. RATE = WEIGHTED RATE

= OAR

18. INCOME TO LAND AND BLDG / SELLING PRICE = OAR

19. RECAPTURE VALUE OF BLDG / SELLING PRICE = RECAP. RATE

20. LAND RESIDUAL METHOD BY ANNUITY:

BLDG. VALUE / PWF = INCOME TO BLDG

21. BLDG RESIDUAL METHOD BY ANNUITY

BLDG INCOME x PWF = BLDG. VALUE

22. PROPERTY RESIDUAL BY ANNUITY

NOI X PWF = PV OF INCOME STREAM (BLDG) (1)

Plus : PRESENT VALUE OF LAND (2)

PROPERTY VALUE

SUPPORTING COMPUTATION:

 COMPUTE PRESENT VALUE OF LAND :

FUTURE VALUE OF LAND x 1/S = PV LAND

23. LOAN VALUE BY ANNUITY METHOD - CAPACITY TO PAY

BUYER’S CAPACITY TO PAY PER MO. x PWF = LOAN VALUE

 PWF = S – 1 / S i

BUYER’S MONTHLY AMORTIZATION / MAF = LOAN VALUE

 MAF = Si / S – 1

24. LOAN VALUE BASED ON COLLATERAL

APPRAISED VALUE OF PROPERTY x LOAN TO VALUE RATIO

= LOAN VALUE

25. INTEREST COMPUTATION:

 PRINCIPAL BALANCE x RATE x TIME = INTEREST

26. PLS REFER TO OUR HANDOUTS

 SQUARE,
 RECTANGLE,
 HYPOTENUSE,
 PARALLELOGRAM,
 RHOMBUS

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  TRAPEZOID,
 TRIANGLE

27. OTHER COMPUTATIONS

 STRIPPING OR DEPTH RULE

 GOODWILORL,
 SUM OF THE YEARS DIGITS,
 CPI METHOD,
 MULTIPLE LINEAR REGRESSION,
 STATISTICS,
 ADDITION, SUBRACTION, MULTIPLICATION,
 DIVISION OF FRACTIONS,
 CONVERSION : PERCENT TO DECIMAL

OPERATING STATEMENT

Potential Gross Income (PGI) say - P24,000,000.00

Less :
Allowance for vacancy and bad debts,
say 10% - 2,400,000.00
Effective Gross Income (EGI) - 21,600,000.00
Less: Operating Expenses, say - 6,480,000.00
NET OPERATING INCOME ( 1 year) - P15,120,000.00

LESS : DEBT SERVICE, SAY - 3,000,000.00

NET CASH FLOW - P12,120,000.00

NOI / VALUE OR SP = OAR

DEBT SERVICE / ORIGINAL LOAN

= MORTGAGE CONSTANT

EQUITY DIVIDEND RATE / CASH ON CASH RATE

= NET CASH FLOW / STOCK. EQUITY
28. THREE APPROACHES

 MARKET DATA,
o VACANT LOT, OLD RES. HOUSES

 COST APPROACH
o LAND WITH IMPROVEMENTS, SPECIAL PURPOSE

 INCOME APPROACH
o COMMERCIAL
o INDUSTRIAL
o RESIDENTIAL APARTMENTS LIKE HOTELS
o COMMERCIAL VACANT LOT

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