capitalisation
method
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