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


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