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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.
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