A financial analysis of an income-producing property is quite different from an appraisal. An appraisal attempts to establish a current market value based on current rents and expenses against a backdrop of past and current market data. An appraisal does not purport to estimate future value.

Yet it is the future financial performance of a property which should be of greatest interest to a potential buyer (and to its current owner). This is so because the current market value of a property is equal to the present value of all future cashflows which are likely to accrue to the owner during his period of ownership, when discounted by a yield acceptable to the owner.

Preparing for a financial analysis is quite similar to a budget planning session which requires the owner of the business to make reasonable assumptions about the many variables which will affect future performance and profits. The goal of a financial analysis of income property is the same as that of any other business: an estimate of future income, and from future income, future market value.

Over many years we have constructed and maintained an analysis program which answers almost all the questions a potential buyer could ask. It takes into account the property’s current and estimated future rents and expenses, potential mortgages, the owner’s tax status, and current market interest rates. It delivers a detailed picture of probable after-tax future performance based on these assumptions and measures the outcome in terms of pre- and post-tax cashflows, Internal Rate of Retrurn (IRR) and Return on Equity (ROE).

Once a analysis program is in place, the sensitivity of any outcome metric as the result of a change in any input variable can be measured in terms of all the rates of return mentioned above. The ultimate benefit of a financial analysis is insight into future performance under defined conditions.

For those who currently own an income property, our financial analysis will project the owner’s ROE for each year of the holding period. Because our program measures current return on current equity and not current return on original down payment, it reports the rate at which the owner is accumulating wealth. Since the ROE of every income property always declines the owner can set his lowest acceptable ROE and determine the steps  to be taken when the ROE crosses this threshold.

If you have questions regarding an analysis of your intended or current income property, please contact us. Click Here