The Donohue Company

Investors who are new to income-producing properties often ask: " How does a commercial lender underwrite a loan?"

It’s a good question, because if one understands how the commercial lender decides on the amount of money he will lend on a commercial property (multi-family properties greater than 4 units included ), a prospective borrower has a chance to assemble a loan package which is attractive to the  lender and thereby improve chances to obtain a good loan. Read More »

Investors contemplating an exchange of properties under I.R.C. §1031 frequently inquire about the length of time a replacement property must be held before one can use the property as a personal residence. Until recently, the IRS has given no clear answer to the question. Now, however, Revenue Procedure 2008-16 offers some guidance not only for properties to be acquired (the replacement property) but also for properties already owned (the relinquished property). Read More »

The most frequently used method to arrive at the value of an income property is the capitalization of income method, sometimes called the "income approach to value." Application is simplicity itself: the property’s net operating income (NOI) is divided by a desired rate of return. The result is the investment value to the investor who selected the rate. This method is also know as direct capitalization .

The net operating income is the amount of cash left after deducting all operating expenses from the collected rent. The operating expenses include all expenses required to be paid to generate the income, but the list does not include deductions for depreciation and amortization of loan fees, nor the cost of servicing any debt.

For example, a property’s annual NOI of $300,000 and capitalized at 8.0% would indicate an investment value of Read More »