Net Income Multiplier For Business Valuation – Winston Rowe & Associates
The Net Income Multiplier or NIM is a factor that is used to estimate the market value of income producing commercial properties.
The strength of this calculation is in its simplicity, because it requires only two pieces of data to compare properties or extrapolate comparable property values.
The net income multiplier (NIM) is the reciprocal of the capitalization rate. As with the cap rate, you use this to express the relationship between a commercial property's value and its net operating income (NOI) for the current of the coming year.
The NIM represents the amount that a typical commercial property investor would pay of each dollar.
First, you want to establish the prevailing cap rate for similar commercial properties in your market area.
Second, you find the reciprocal of that rate, the result is the NIM.
Finally, when you see the NOI of a prospective commercial property investment, you multiply the NOI by the NIM to get a quick reading of the commercial property's value.
How to calculate the NOI:
To calculate the net income multiplier (NIM), take the prevailing, market driven cap rate and find it's reciprocal.
Net Income Multiplier = 1 / Capitalization Rate
To us the NIM to estimate a property's value, multiply by the net operating income (NOI).
Present Value = Net Income Multiplier X Net Operating Income
Winston Rowe & Associates, prepared this knowledge based article. They are a no upfront fee commercial real estate advisory and due diligence firm that specializes in financing of commercial real estate transactions.
They can be contacted at 248-246-2243 or visit them online at http://www.winstonrowe.com