Property Value Formulas

Captain McDuck

I'm and trying to find a very basic formula using the rental income on a property to get its value.

I have found a few other more complicated ones however I am just looking for the above basic one.

Any advice would be greatly appreciated.

dardhal

Every tax should, before being even approved, have a reason for its existence. The "housing tax" is a perfect example. We all know the main idea behind the tax is increasing the public income to try and reduce deficit and comply with the IMF/EU agreement. But shouldn't be that way.

The way the housing tax is created (at least, theoretically) in other countries is considering the cost of providing, maintaining and improving the services the public sector provides to houses and other types of dwellings, and once the total amount is calculated, the total cost is shared (theoretically in a fair way) among all entitled to pay (and you are entitled to pay if you own a property that enjoys those services: water, din collection, street and lighting maintenance and initial installation,... you name it).

So, according to the above, it's clearly more expensive to the public authorities to provide adequate street maintenance, water piping, lighting to the streets, and general waste removal / street clenaning to remote bunches of detached houses than to a city centre apartment building consisting of 100 apartments. So the housing tax for each of the first houses should be significantly higher than those for any of the second ones.

Maybe it's fair to do a mathematically fair share of the cost according to the real costs as estimated above. That way, a detached house in the middle of a small residential area in a smal city suburb could be taxed maybe ten times as much as a similarly sized house in downtown Dublin, even if the market price for the second is much higher than the first. But the same could be said for the postal service and the phone service: you went to live to the middle of nowhere, ok, so now pay for it.

As modern welfare states don't behave that way, for now, the total cost is usually shared among all those entitled to do so in a much "unfair" way. So maybe the differene between the two examples above is not 10:1, but 4:1. It all depends on the total amount that the government can consider as "socially unacceptable".

The other way to do things is just taxate on the "owner wealth" or on the "property value", whatever it means in a downspiral housing market. That way the government can cry loudly that "rich people will pay more", but that will go against the initial tax purpose, that is to pay for the cost of the services. And "rich" people are already paying more, because PAYE plus USC plus PRSI combined is more than half the gross salary. Not bad at all, and not that different to the top most "socialist" countries in northern Europe.

The government will do as bad as they usually do, and to ease the burden on "poor people" they will implement some kind of weird and complex tax credit, deduction, exemption, etc. for the tax. So it will be the middle class who will pay the most (no surprises here). Instead, I think everyone entitled should pay the tax and, either as current tax credits, or as an end of year tax return, those in the lower income ranges get _some_ kind of refund.

But I'm very sure this government can't do better, as no other government in Europe seem to have a clue, and will complicate things to death, avoid explaining the tax motivation, and continue spending truckloads of money on things that give no value to the country, just to keep the statu quo happy.

I like taxes as much as the next guy, but if we agree that taxes are necessary, I believe a complete taxation system rewrite from scratch should be implemented, and now. The current system seems complex and cumbersone to me, as well as unfair in many respects. For example, regarding the VERY different taxation on married couples to unmarried couples. Either all couples living together have the same level of privileges, or no one. I'm not talking here about couple with children, that obviously incur in greater expenses that couples with no children, and it's logical they should have some sort of tax relief compared to other couples.

Just my (past) midnight two cents.

shangri la

Captain McDuck wrote: »

I'm and trying to find a very basic formula using the rental income on a property to get its value.

I have found a few other more complicated ones however I am just looking for the above basic one.

Any advice would be greatly appreciated.

There is no formula as such imo. There are too many variable factors to decide a house is worth 15x its annual rental income. The overall health of the economy, NAMA inflating prices, availability of credit, buyer sentiment, huge over development of the midlands especially, new motorways making more areas suitable for commuters, ect, ect.

I have seen the formulas you mentioned and they are the tip of the iceberg to accurately price a market.

The_Conductor

There are basic formulas in use globally- which take gross rental income and apply a multiplier on it- so for example a gross rental income of 7% (by this I mean a raw ROI score) or better might be acceptable, however 6% or lower wouldn't cover the cost of capital and the costs associated with managing the unit.

The Return on Investment is always several percentage points above the ROI on government bonds- which in an Irish context is still over 6%, so factoring other costs and a risk dividend into the equation- in current conditions- you would be seeking a gross ROI of probably north of 10% (in an Irish context)- which would equate to 10 times annual gross rental income equalling the theoretical purchase price of the property.

Of course this is purely hypothetical, and there are a list of factors longer than my arm that any logical investor would have to take into account before considering property as an investment- and the risk dividend in the current climate might be far greater than the 4% I'm implying (or if conditions improve as do returns on gilts and bonds- the alternate capital return would fall, meaning a lower ROI on this investment would logically fall too- but you get the picture.........)

There is no science- there is no fast and simple rule of thumb.

zac8

A basic calculation to use is to multiply one months rent by 100.

This tells you what you need to pay to achieve a 12% gross yield.

Multiply one months rent by 120 for a 10% yield.