Analysing REITS

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Hi when we value a property using cap rate method, do we need to deduct the property income with tax rate? if yes what kind of tax rate? individual tax income? corporate tax income? rental income for individual/ corporation? (this is on top of the property tax that is already deducted to arrive at the property income)

Also if we want to value a property held by a REIT, shall we deduct their property income with the trustee fees or management fees? because these fees are only payable by a REIT but not other holders?

thanks a lot!

Strictly speaking, Cap Rates are derived or extracted from real property sales – from transactions of buyers and sellers competing in a market place.

A property is an asset which could be owned by an individual or an entity/business structure ( a company, business trust, reits etc)

In property valuation, the objective is to appraise the value of a property based on its ability in producing income.

Hence only deduct operating expenses that are essential or necessary to insure its ability to continue to produce income.

Utilities and property management fees are operating expenses.

Repair and maintenance are operating expenses - but not improvement/additions which are capital expenditures.

Property tax is an operating expense but the Owner’s income tax liability generated by the property is not.

Mortgage interest / borrowing expenses may be a deductible expense, but it is not an operating expense – one may need a mortgage/borrowing to afford the property, but not to operate it.

Are you trying to value the asset (property) or the business entity (a company, business trust, reit etc) that owns the asset ? There are two different things !

Thanks a lot for the info ! I am trying to value the property not the business entity...
also do trustee fees or management fees part of operating expenses? (because we won't need to pay these if we are the holder of the property instead of the REIT)... and once you have valued it, do you still need to apply some discount?