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What is Net Asset Value (NAV) in Real Estate?

The process of finding the right multifamily investment requires serious research, even for those who passively do multifamily real estate investing. An investor needs to identify the deals or funds that align with his or her investment criteria before they can truly become passive in the deal.

A property's net asset value (NAV) can be used in evaluating an opportunity, as well as evaluating a fund's. To gain an advantage in the public and private real estate markets, it is important to understand NAV and how it is used.

What is Net Asset Value?

NAV stands for net asset value, which is the value of an asset's equity at a particular point. In addition to measuring equity in individual assets, it can also be used to calculate debt.

As an example, a mutual fund that owns and operates multiple apartment buildings or commercial real estate investments can use them to value the equity associated with its portfolio.

An investor often uses NAV in order to figure out an asset's value before subtracting any outstanding debts or liabilities. Investments that have a high net asset value are considered to be more profitable.

Due to the fact that there is more revenue to return to investors after debt payments and other liabilities have been paid, there is more money available to do so. In addition to the sale proceeds, investors will also receive more money upon the sale.

What is the Use of Net Asset Value in Real Estate?

Mutual funds, exchange-traded funds (ETFs), and real estate investment funds are all examples of investment funds that have a net asset value. By calculating the ratio between a fund's trading price and its assets' fundamental value, investors can determine whether they should buy or sell a fund.

A net asset value calculation is relatively simple when it comes to multifamily real estate investing. A net usually indicates a reduction in value when investors hear it. Deductions are made from the asset value in this case, in order to account for liabilities.

NAV = (Total Assets - Total Liabilities) / Number of Shares

In addition to determining the value of a single property, NAV can also be used in the analysis of a whole portfolio of properties. As part of total assets, real estate assets can be included along with industry-specific securities, cash, receivables, and other related assets.

Any outstanding liabilities associated with an asset, including debt on a property, debt on a company, debt on a fund, accounts payable, taxes, insurance, and so on, are considered total liabilities.

The Importance of NAV to Commercial Real Estate Investors

In weighing their options about where, how, and with whom to invest, commercial real estate investors should be aware of a fund's net asset value.

A majority of private equity investors will invest in an investment company unless they are investing in a specific real estate deal. In order to invest in securities or other assets, the investment company pools capital from many individual investors.

The investment company's portfolio is divided among its investors proportionally to their investments. Thus, calculating the value of one's individual shares in a fund requires understanding the fund's value.

In addition, fractional shares of many different securities are also available to individual investors through these investment vehicles.

Using NAV to Assess REITs

A real estate investment trust's (REIT) NAV is a crucial metric to use when evaluating its performance. Using it allows a firm to provide a more precise estimate of REIT assets' market value as opposed to relying solely on book value.

Analysts estimate the NAV based on subjective assessments of the REIT's assets. Capitalizing operating income based on market rates is one way to accomplish this. By dividing a property's operating income by a market cap rate and estimating the market value, a property's estimated value is calculated. 

Analyzing REITs based on their NAV is a good method, but its effectiveness depends on how well each individual holding is assessed by the analyst. In order to compute an accurate NAV for the entire REIT, assets' market values must be meticulously calculated. 

Learn More About Net Asset Value with Saint Investment Group!

If you're looking to diversify your portfolio or to get started in real estate investing, we're here to help.

Our company understands the calculation of net asset value and uses it on an as-needed basis with our offerings where appropriate.

If you would like more information on our investment opportunities, please feel free to contact us at 949-881-7128 at Saint Investment Group today!

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