Wealth Opportunities in Commercial Real Estate: Management, Financing, and Marketing of Investment Properties

Time-Frame Assumptions

It is crucial to determine the time frame within which the analysis is being conducted. The standard assumption is that the income and expense analysis is being generated on an annual basis; that is, each line item reflects an applicable annual figure. Hence, for example, the gross income figure of $1,440,000 represents income taken in over a complete fiscal year. The assumption is that the numbers represent annual figures since the project's value is typically determined by using annual numbers.

The problem is that nowhere in the analysis or the discussion is it stated that these figures represent income or expenses accumulated over an annual period. If the above numbers were based on monthly figures, then annualizing the monthly $1,117,305 NOI figure would result in an approximate $13.4 million annual NOI and an approximate $149 million fair market value at a 9 percent capitalization rate.

The point is that you should be keenly aware of the time frame in which the figures are generated so that the analysis can expressly and properly reflect the assumptions. Usually, if nothing is otherwise stated, NOI is expressed as an annual amount.