Unlocking Growth Through Strategic Real Estate Analysis
Dr. Carter needed to determine if the $1.2 million asking price for the veterinary practice's real estate was justified, considering its current profitability and potential for growth. She was unsure how to accurately assess the property's income-generating capability and compare it to other investment opportunities. Overpaying could significantly impact her future earnings and debt obligations.
Using Golden Door Asset's Cap Rate Calculator, they determined the practice's current capitalization rate was 6.5%, based on its net operating income of $78,000. Further analysis, incorporating projected income growth from specialty service expansion (dental and dermatology), suggested a potential to increase the NOI to $110,000 within three years, raising the cap rate to 9.2%. This insight allowed Dr. Carter to negotiate a price reduction of $75,000, reflecting a more realistic market value.
The Cap Rate Calculator was used with inputs including the property's market value, net operating income (NOI), and potential income from expanded services. The debt-service-coverage-ratio was calculated to ensure affordability.
$75,000 initial savings on the purchase price, plus an estimated $32,000 annual increase in net operating income within three years from specialty service expansion.
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