Income Approach to Value PDF

Income Approach 10 to Value Learning Objectives After completing this lesson, students should be able to… Explain the relationship between income and value for an investor Describe how an investor might decide on an acceptable rate of...

Income Approach 10 to Value Learning Objectives After completing this lesson, students should be able to… Explain the relationship between income and value for an investor Describe how an investor might decide on an acceptable rate of return State the formula for direct capitalization Understand the differences between potential gross income, effective gross income, net RSHUDWLQJLQFRPHDQGSUHWD[FDVKÀRZ Identify how each type of income is calculated Read a reconstructed operating statement List the different methods for estimating capitalization rates Understand how to use gross income multipliers and residual techniques Calculate the present value of a future payment using discounting Suggested Lesson Plan 1. Give students Exercise 10.1 to review the previous chapter, “Sales Comparison Approach to Value.” 2. Provide a brief overview of Chapter 10, “Income Approach to Value,” and review the learn- ing objectives for the chapter. © 2018 Rockwell Publishing  Real Estate Appraisal Instructor Materials 3. Present lesson content:  ‡ ,QYHVWRU¶V3HUFHSWLRQRI9DOXH – Rate of return – Competing investment opportunities – Income capitalization  ‡ 'LUHFW&DSLWDOL]DWLRQ – Potential gross income – Effective gross income – Net operating income  ± 3UHWD[FDVKÀRZ – Reconstructed operating statements EXERCISE 10.2 Direct capitalization  ‡ &DSLWDOL]DWLRQ5DWHVDQG,QFRPH0XOWLSOLHUV – Comparable sales method – Band of investment method  ± 'HEWFRYHUDJHPHWKRG  ‡ &DOFXODWLQJ9DOXHE\'LUHFW&DSLWDOL]DWLRQ – Gross income multipliers – Residual techniques EXERCISE 10.3 Capitalization rates and income multipliers  ‡