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

2. 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

3. 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

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

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

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

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

8. 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

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

10. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 10 Problems Suggested solutions begin on page 430.

11. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 11 Problems 1 and 3—Suggested Solutions

12. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 12 Problems 5 and 6—Suggested Solutions

13. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 13 Problems 7, 8, and 9—Suggested Solutions

14. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 14 Problem 10—Suggested Solution

15. Student Handbook to T HE A PPRAISAL OF R EAL E STATE Chapter 22 15 Problem 10—Suggested Solution