The Student Handbook to T HE A PPRAISAL OF R EAL E STATE 1 Chapter 22 Direct Capitalization

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 2 Capitalization Rates The ratio of the sale price to the expected net income for the next year May be extracted from comparable sales Other methods can be used to support capitalization rate

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Derivation of Overall Capitalization Rates From comparable sales  R O = NIR/EGIM By band of investment  Mortgage and equity  Land and building Debt coverage formula (mortgage underwriters method)  DCR = NOI/R M  R O = M x R M x DCR  DCR = NOI/ADS Chapter 22 3

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 4 Band of Investment—Mortgage and Equity

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 5 Band of Investment—Land and Building

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 6 Debt Coverage Formula

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 7 Residual Techniques

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 8 Gross Income Multipliers and Gross Rent Multipliers Conditions  Buyers think this way  Similar expense ratios  Similar upside potential

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 9 Sale and Rent Comparable Worksheet

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter Problems Suggested solutions begin on page 430.

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter Problems 1 and 3—Suggested Solutions

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter Problems 5 and 6—Suggested Solutions

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter Problems 7, 8, and 9—Suggested Solutions

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter Problem 10—Suggested Solution

Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter Problem 10—Suggested Solution