Valuing a Troubled Property

[Nathan Tabor]

The question of "What do I pay for a troubled property?” is a hard one to answer unless you know the process. The process I use is backing into the value.

Here’s how you can do it:

First, put all the financials you received from the seller to the side.

Second, establish the NOI by calculating your own numbers. Be sure and use conservative rent amounts and liberal expenses.

Third, establish the cap rate for your property.

Fourth, determine holding and carrying costs.

Fifth, determine cost to renovate property.

Sixth, establish the profit you want to make.

Seventh, establish the cost to sell (broker, taxes, etc)

Wa-lah (Voila), now you have the full picture you need!

Now, take these numbers and calculate the value of the troubled property.

Here’s the formula:

Value of Stabilized Property (NOI/Cap rate) – Cost to Renovate – Projected Profit – Holding/Carrying Costs – Broker Fees = Value of "Troubled" Property.

The Value of "Troubled" Property = your OFFER PRICE!!!

[Joseph Firmin]

@Nathan Tabor, thanks for sharing your formula! When you ran through this on the podcast I was curious and took some notes, but this is much easier to follow. Thanks again!