Doing Small Income Property Analysis and educating income property buyers and small investors on how to do small-income property analysis on the potential income of small investment properties should be an important trait of a real estate professional.

We also assist home buyers and investors interested in purchasing multi-family properties to create passive income through rentals and create equity over time.

This Small Income Property Analysis information video could assist the beginner investor with the basics analysis to make a better-informed purchase.

There are several approaches and analysis methods investors utilize to make sure they’re making a sound decision.

These simple methods quickly tell you if the property meets your investment objectives whether they’re smaller investments; 2-4 units or larger properties.

I’m Roberto A. Sanchez with United RE and the Sanchez Realty Group, I’ll explain some of the most common methods used to analyze a property.

For the sake of this illustration we will use a 2-unit property with a purchase price of $300,000 and a rental income of $3,000 a Month.

These 4 Analysis Methods are Most Commonly Used:

1^st  Net Operating Income:

Gross Rental Income – Operating Expenses

Ex:  $3,000 x 12 months (Income)  – $11,000 (Expenses) or  $36,000 – 11,000 or $27,000 NOI  (Net Operating Income – Before Mortgage)

2^nd Cap Rate:

Net Operating  Income / Total Purchase Price

Ex:  $27,000 / $300,000 = 9% Cap Rate

3^rd 1^st One Percent Rule:

Monthly Gross Rent >= 1 % of Total Purchase Price

Ex:  $3,000 >= 1% of $300,000 = $3,000

4^th Net Income After Mortgage (NIAM)

Net Operating Income – Mortgage or Finance Costs

$27,000 – $12,900 (Principal + Interest) = $14,100 (NOI)

4^th Cash on Cash Return (CoCr or COC):

Net Income After Mortgage / Down Payment

Ex: $14,100 / $75000 = 18% COC

Other Methods are:

The Gross Rent Multiplier:

Total Purchase Price / Yearly Gross Rent

Ex:  $300,000 / $36,000 = 8.3

The 50% Rule:

It estimates the NOI at 50% of Gross rents

Ex: $36,000 yearly GR x 50% = $18,000.