The
method of valuation to be used for investment properties. The most
common use of the method is as follows:

1. Determine the expected net annual income of the subject property

2. Analyse sales of comparable investment properties to determine the capitalisation rate as a %

3. Multiply the net annual income by the 100/capitalisaion rate

EXAMPLE

Net annual income of the subject property: $20 000

From sale of comparable properties it is found that the market's capitalisation rate is 9.5%pa

Market value = net annual income * 100/capitalisation rate

Market value = 20000 * 100/9.5 = 210526

Market value say $210 500

1. Determine the expected net annual income of the subject property

2. Analyse sales of comparable investment properties to determine the capitalisation rate as a %

3. Multiply the net annual income by the 100/capitalisaion rate

EXAMPLE

Net annual income of the subject property: $20 000

From sale of comparable properties it is found that the market's capitalisation rate is 9.5%pa

Market value = net annual income * 100/capitalisation rate

Market value = 20000 * 100/9.5 = 210526

Market value say $210 500