How to calculate profitable properties



Here, it is a judgment material when purchasing and possessing profitable properties

We will introduce calculations and numbers.


1. Judge by yield (CAP Rate)


One of the judgment materials when seeing profitable properties is yield.

Capitalization Rate = CAP Rate, which is often used in Japan

It is not "surface yield", but "net yield" that divides net profit by property price.

As calculation formulas,


Net income (NOI = Net Operating Income) ÷ Property price




■ Net Income (NOI = Net Operating Income)


Net income is called NOI (Net Operating Income), but this formula is


Annual rent income (GI = Gross Income) - Operating expenses (Operating Expense)




However, when the tenant withdraws and replaces it will definitely be a vacant room

Since it will occur, it is necessary to subtract this from the rent income as the vacancy rate as well.

The formula is




In the main areas of Southern California, the rental demand is high, so the vacancy rate is

It is common to see about 5% to less than 10%.


■ Operating Expense


The items that can be recorded as operating expenses are as follows.


· Property tax (Taxes) 
· Home insurance (Insurance) 
· Management fee (Management) 
· Repair · Maintenance (Maintenance) 
· Utilities (Utilities) 
· Preparation for long-term repair (Reserves)


The tax rate varies depending on City, but in Southern California

Approximately 1.25% is common for the price when purchasing.


As Los Angeles has popularity and demand differences depending on the region,

In short, what percentage is hard to say is average, but along the beach and

CAP Rate is about 3% in the area where the property price is high in the area where the school district is good,

Generally it will exceed the 4% range when the property price is low.


2. Judge by the profit multiplier (GIM)


Another indicator used to judge the profitable property is the revenue multiplier (GIM).

The formula is


Property price ÷ Annual rent income (Gloss Income)


It is a simple thing.


The higher the CAP Rate, the higher the profitability, but the lower the GIM

Indicates that you can purchase at affordable price.

In popular areas such as Santa Monica, GIM often exceeds 20

In other areas, if you reach 15 numbers, reasonable price of the property and

You can judge.








Real estate service

Residential home sales / Multi unit property sale / Lease



We are a consultant in the real estate market where we specialize in marketing, coordinating business tours and events.