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= Land Value + Building Replacement Cost - Total Depreciation
The direct capitalization method and discounted cash flow method (DCF)
are two income approaches used to appraise a commercial
(income-producing) property. The direct capitalization method estimates
the value of an income-producing property based on the level and quality
of its net operating income. The DCF method discounts future projected
cash flows to arrive at a present value of the property.
Cap rate = NOI/Valuewhere the NOI is usually based on what is expected
during the current or first year of ownership of the property.
Sometimes the term going-in cap rate is used to clarify that it is based
on the first year of ownership when the investor is going into the
deal.
Cap rate = NOI/Valuewhere the NOI is usually based on what is expected
during the current or first year of ownership of the property.
Sometimes the term going-in cap rate is used to clarify that it is based
on the first year of ownership when the investor is going into the
deal.
Cap rate = Discount rate - Growth rate
DSCR = NOI/Debt serviceThe debt service includes both interest and principal payments on the mortgage.
NOI = rental income + other income - vacancy and collection loss - prop- erty management costs
= Potential gross income (PGI) - Vacancy and collection loss =
Effective gross income (EGI) - Operating expenses (OE)= Net operating
income (NOI)
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