Chapter 23 – Income or Investment Approach of Apprasial

Chapter 23 — The Income or Investment Method of Appraisal

 

  • The method used to determine the value of income-producing properties is the income/investment method of appraisal
  • This method converts the income earned by the building into a market value and it do this by using a capitalization rate
  • People buy properties to make money

 

o Invest a lump sum

o Earn a return through cash flow from the property in the future

 

  • Investors are interested in a return over a certain period of time
  • Investments are chosen based on

 

o Risk

o Management

o Liquidity

o Return on Investment

 

Risk Management Liquidity % Return
C.S. Bonds Low Low Good 2%
Van. Stock Exchange High Low Good 10%
Restaurants High High Poor 50%

 

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