Property Valuation And The Income Approach

Property Valuation And The Income Approach Part – 2

Posted Posted in Real Estate

Read Property Valuation And The Income Approach Part – 1 And after all it’s the income approach ultimately especially when you consider it a little bit broader than simply in dollar terms that is responsible for the desirability of owning property in the first place another point which is made in the study guide is that land like money is not capital even though in our part of property valution history. We often refer to both money and land as capital and Property valuers go into the history of that confusion in the study guide one of the odd things about the fact that these two very important and valuable things in our society are not capital strictly speaking is the curiosity of where yield rates come from. And for that matter interest rates and their relationship yield is the ratio between the income as rent divided by the property valuation so yield as a simple percentage and it’s this ratio of the rent divided by the capital value and in some ways. It’s similar to the interest rate on money in that the interest payment you receive divided by the principal of a deposit or a loan gives you the rate of interest both of these rates ultimately are mysterious. Property valuers don’t exactly know where they come from they don’t have some logical or scientific basis we can observe them as being present but they’re present more as a social artifact in other words something which is simply a product of the doings of society not as something that comes up as a result of some quantum of labor or quantum of something. Which is quantifiable and this gives rise to what is a ongoing question both in economics and in property valuation and that is what is the appropriate rate of profit rate of interest and in property yield to apply when you’re going from a rental value to a capital value and in the study guide. Property valuers look further at the similarities and linkages between money and land this is very important because money and land are linked in our world and especially Since if interest rates fall just give a little bit of thought to what that does to the price of property there’s land and money are very very important assets in our economy let’s move further now. And look property as an investment if Property valuers are looking at getting into the mind of the most likely purchaser which after all is where the valuer must delve to find the answer to the property valuation problem. What we find is that property investment competes with other financial investments in other words as investor I might have half a million dollars to invest And I’ll be wondering whether to buy government bonds or shares in a company or maybe an item of property and so the item of property must be able to be compared in some way. And evaluated against these competing investments and this is where yield is so useful because yield gives you a rate of return which can be related to the rates of return on money loans and also on profits on business ventures. And so yield already is an attractive comparator of investment value and so by using yield Property valuers find that we’re able to more readily understand property as an investment object now if we know the yield that’s operating in a particular property valution market. And we know the rent we get the capital value simply by dividing the rent the return the net operating income by the yield and that’s exactly what the income approach is very very simply in this second last bullet point here capital value or the sale price of land equals. The return as in the rent divided by the yield this means that Property valuers started to go to the market to find the rental property valution we tend to do that by looking at comparable investment properties. And what their rental value is likely to be what we’d be able to rent them for at least and for we also go to the property valution market to find the yield nice thing about going to the market for these two factors even though it appears to be a sales comparison approach Property valuers don’t have to go to exactly the same kinds of property to look at the yields in fact.

Property Valuation

Property Valuation And The Income Approach Part – 1

Posted Posted in Real Estate

Valuers now move to the income approach to Property Valuation in dealing with this Property valuers are really getting to the end of the major approaches so the three major approaches you need to be comfortable with to have a good understanding of the comparable sales approach or the sales approach the cost approach. And now the income approach this income approach you will find also relies to a certain extent on a fair bit of market data and so real estate valuers gonna have to look at this whole question there is the income approach really just a variant of the comparable sales approach. We’re going to end up with the same difficulty we had with the cost approach and that is that Property valuers do rely a fair bit on market data and so does that make it a sales approach or something else and the answer is because our focus is something else that’s really what’s going to define the method even though. We rely quite heavily on market data moreover Real estate valuers are going to look at the way that the three approaches to evaluation actually have considerable overlap that’s going to be drawn out far more in the study guide but for the moment I just like you to think about the way that when we do the cost approach. We are also interested in a comparable sales especially for the land when property valuers do the income approach we’re going to see that we’re going to be interested in costs in this case property valuation service providers are going to be looking at operating costs rather than capital costs but cost estimation. And so on is also very important and we’re also going to be going to the market for our various bits of data for rental darka to eventually calculate the yield and so what we need to be aware of is that these three approaches are actually interrelated oh. And by the way by the time you go back to the sales approach which you might say well that’s the bedrock that’s the base why don’t we simply use that all the time you’ll also find that when we do adjustment grits we’re really looking at cost issues and to a certain extent when we’re looking at the most probable buyer. Property valuation service providers are often considering things which are getting very close to some of the elements that are important in the income approach and so the three approaches actually have a lot of overlap let’s look now at more detail into the income approach itself this module really begins with a little bit of a recap. Or rather taking further into depth an idea that Property valuation service providers first encountered in the first module and that was that the first fact of property value is its rental value and it’s really from its rental value that you get its capital value or sale price. We look further in this module into the history of this particular idea and Real estate valuation service providers see that there has been a time in European history when property did not actually have a capital value or a sale price at all and that was only about years ago back about a century. Or so before Shakespeare that is because property wasn’t bought and sold before about the Year more or less and because it was hardly ever bought or sold sale price was simply irrelevant despite rental value being extremely important and in the study guide. Property valuers go further into looking at the way that rental value comes from the human value the experiential value of land in the life of society and that’s important because it gives us the first idea that’s important for this particular approach. Content source : Youtube