1. What is Capitalized Value?

Capitalized Value is the amount of money whose annual interest at the highest prevailing rate of interest will be equal to the net income from the property.

2. How Does the Calculator Work?

The calculator uses the formula:

Where:

• \( Cv \) — Capitalized Value ($)
• \( RN \) — Net Rental Income ($)
• \( Y \) — Years Purchase (years)

Explanation: Net Rental Income is calculated by deducting all outgoings from gross rent. Years Purchase in perpetuity is defined as the capital sum required to be invested in order to receive a net annual income of $1 at a certain rate of interest.

3. Importance of Capitalized Value Calculation

Details: Accurate Capitalized Value estimation is crucial for property valuation, investment analysis, and determining the fair market value of income-producing properties.

4. Using the Calculator

Tips: Enter Net Rental Income in dollars, Years Purchase in years. All values must be valid (positive numbers).

5. Frequently Asked Questions (FAQ)

Q1: What is Net Rental Income?
A: Net Rental Income is calculated by deducting all outgoings (maintenance, taxes, insurance, etc.) from the gross rent received from the property.

Q2: How is Years Purchase determined?
A: Years Purchase is typically calculated as the reciprocal of the capitalization rate. For example, if the cap rate is 5%, Years Purchase would be 20 years.

Q3: When should this valuation method be used?
A: This method is particularly useful for valuing income-producing properties such as rental apartments, commercial buildings, and investment properties.

Q4: Are there limitations to this valuation method?
A: This method assumes stable rental income and consistent expenses. It may be less accurate for properties with fluctuating income or unusual expense patterns.

Q5: How does this differ from other valuation methods?
A: This is an income-based approach to valuation, unlike comparable sales or cost approaches that focus on market comparisons or replacement costs.