Investment Properties

Real Estate investment should be always be... 
S M A R T: Specific Measurable Attainable Relevant Time- Based

"Begin with the end in mind."

- Stephen Covey 1989

The Basics For Valuation Of Commercial Real Estate:

The following financial measures will help you to evaluate an investment.

Net Operating Income (NOI): 
Cash flow after expenses NOT including debt service or taxes.

Net Present Value (NPV): 
The sum of the present values of the annual cash flows, using a time-value-of-money calculation, minus the initial investment. And investment with a NPV of zero or less will lose money over time.

Capitalization (Cap) Rate: 
Rate of return used to determine the value of a property's income stream. It is calculated by dividing the cash flow by the cost or value. The higher the cap rate the lower the value of the property. The formula is as follows: NOI divided by purchase price = cap rate

Cash on Cash Return: 
Before tax cash flow (NOI less debt service) divided by initial cash outlay: also referred to as equity dividend return.

Gross Rent Multiplier (GRM):
Total rental income assuming the property is 100% leased. It is calculated by dividing the GRM into the sales price. The higher the gross rent multiplier, the lower the value of the property.

Cash Flow Before Tax (CFBT):
This is achieved by NOI divided by ADS (Annual Debt Service).

Note: Many investors in the Vancouver market hold and rent for passive appreciation.

Some Types of Real Estate Investing Strategies To Consider:

  • buy, hold, rent
  • fix & flip
  • flip to yourself
  • rent to own
  • 2nd mortgages
  • property development

A Few Historical Considerations/Benefits:

  • someone pays off your investment (mortgage) i.e. a tenant
  • market growth (passive appreciation)
  • leverage asset and access capital
  • principal recapture when mortgage is paid off or via passive appreciation
  • forced appreciation via flipping
  • gain retirement "income" via property investing


- Make sure you know what the insurance deductibles are for the strata 
- Insurance should cover all deductibles, including but not limited to, water damage.

General for all residential investment purposes:
- Loss of rental coverage for a major loss is highly recommended
- Personal content insurance i.e. appliances, improvements etc.
- 3rd party liability coverage.

The above is provided by Sheryl Dawson of Dawson Realty Experts. Sheryl has an I.C.I. (Investment, Commercial, Industrial) Designation/Certificate from the REBGV (Real Estate Board of Greater Vancouver) as well as an International C.I.P.S. (Certified International Property Specialist) designation from NAR (National Association of Realtors) in the USA in cooperation with CREA (Canadian Real Estate Association) in Canada. Please consult us before embarking on investing in real estate. There are more things to consider than outlined above. We are here for you!

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