Special cases of the use of direct capitalization of income method in the evaluation of real estate

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Special cases of the use of direct capitalization of income method in the evaluation of real estate

Journal Title: Геодезія, картографія і аерофотознімання - Year 2016, Vol 83, Issue 83

Abstract

Purpose. An urgent solution to the problem is to overcome the impact of inflation to determine the value of the property. The purpose of research is to derive mathematical relationships for the transition of the economy of Ukraine. Methodology. The methodical approach based on the capitalization of net income used for the valuation of real estate, which is bought and sold based on its ability to make a profit, and aims to determine the property value as the current value of future income. The approach is based on the expectations of the principles of supply and demand substitution. The income approach, as well as comparative, requires the relevant comparative data. At the same time the subject of research and analysis is the potential gross income from the rental of real estate; losses from the lease payments; the possibility of obtaining additional revenue and operating expenses. In this case, they must serve as proof of the market rate of return on real estate evaluated. Results. The studies demonstrate the importance of applying the method of direct capitalization income in real estate appraisal. Achieved practical implementation of the theoretical research. By analyzing the mathematical relationships, we are able to calculate the rate of increase and the intensity of net operating income. Then, knowing the net rental income, it is possible to calculate and gross revenues rents. These dependencies can be used by the appraiser in cases when it is necessary: to determine the value of the building at a certain value of the land, the rate of increase in the cost of the known average annual net operating income from the property at the valuation date. Rate revenues of buildings and rents, if we know the value of the land, its growth rate and the cost of the building. Rate value of the building using the same information about an object with a known value of the analogue, when we know the cost of land, its growth rate and income from real estate at the valuation date. Originality. The studies show that the resulting mathematical relationships are fully consistent not only in cases where inflation is permanent, stable character, but also for the variables of inflation in transition economy of Ukraine. In these studies take into account not just the nominal discount rate, the growth rate of the value of land and rents, as well as their differences, which remain constant for variable inflation. And so when the future is projected rate of inflation over the years, it can be argued that the mathematical relationships will not give significant errors we have obtained. Practical significance. This paper presents the practical implementation of the theoretical developments. Studies have yielded mathematical relationships for a correct and reasonable performance evaluation of the object. The results obtained in the mathematical relationships are entirely consistent for the countries with economies in transition (shift inflation and income growth). Prospects for further research in this direction is the creation and implementation of the methodology in Ukraine cadastral valuation of real estate, which should be based on generally accepted methods for estimating the market value of real estate.

Authors and Affiliations

Yu. Hubar

Keywords

EP ID EP193666
DOI -
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