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Capitalised Earning Value of Property is a method used to estimate the overall value of a property based on its income-generating potential. This approach is particularly useful for investment properties where the primary value comes from rental income.
The calculator uses the formula:
Where:
Explanation: This formula converts the annual net rental income into a property value estimate by applying a capitalisation rate, which reflects the expected return on investment.
Details: Calculating the capitalised earning value helps investors determine the fair market value of income-producing properties, compare different investment opportunities, and make informed decisions about property acquisitions and sales.
Tips: Enter the net rental return per annum in dollars and the rate of capitalisation as a percentage. Both values must be positive numbers to get a valid calculation.
Q1: What is Net Rental Return Per Annum?
A: Net Rental Return Per Annum refers to the income generated from a property through rental payments after deducting various expenses associated with owning and maintaining the property.
Q2: What is Rate of Capitalisation?
A: Rate of Capitalisation is the capitalisation rate which is a fundamental metric used in real estate investment analysis to estimate the potential return on an income producing property.
Q3: How accurate is this valuation method?
A: While useful for quick estimates, this method should be used in conjunction with other valuation approaches as it doesn't account for property appreciation, tax implications, or changing market conditions.
Q4: What is a typical capitalisation rate?
A: Capitalisation rates vary by location, property type, and market conditions. Typically ranges from 4% to 10% depending on risk and market factors.
Q5: Can this method be used for commercial properties?
A: Yes, the capitalised earning value approach is commonly used for both residential and commercial income-producing properties.