Net Income Multiplier - NIM

 

             The Net Income Multiplier or NIM is a factor that is used to estimate the market

             value of income producing properties.  It is equal to the market value of a property

             divided by the net operating income or NOI.

 

             Example 1:  A residential income property has an NOI of $15,000 and a market value 

             of $150,000.  

 

                                                Market Value                      $150,000

                        NIM  =      -----------------------------      =       ------------       =    10

                                          Net Operating Income                $15,000

 

             Example 2:  The average net income multiplier for recent sales of comparable 

             properties in a particular area is 9 and the net operating income for a similar

             property we are considering buying is $20,000.

 

                        Market Value  =  NIM   X   NOI   =    9    X   $20,000    =     $180,000

 

             The net income multiplier and the cap rate are financial tools used to estimate

             the market value of income properties.  The cap rate is better known and more

             widely used by most investors.   The cap rate and the NIM produce identical  

             results when estimating the market value of an income property since the net income 

             multiplier is the inverse of the cap rate.  The cap rate is equal to 100 divided by     

             the NIM.  The NIM is equal to 100 divided by the cap rate. 

 

                                                    100                                             100

                         Cap Rate  =     -------                      NIM   =    ------------ 

                                                   NIM                                        Cap Rate

 

             When using the capitalization rate and the net income multiplier to estimate the

             value of an income property, accurate and current financial data for comparable

             sales of similar properties is required.  

 

             Some investors prefer to use the Net Income Multiplier over the Cap

             Rate.  A Ratio Analysis report includes many other important real estate

             investment ratios in addition to the NIM. You can choose which investment

             ratios that you find most important.

 Tien and Jim 

Your Real Estate Partners