Chpt 9 - Chapter 9 Valuation Using the Income Approach...

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Chapter 9 Valuation Using the Income Approach Objectives Calculate the income approach to value using the direct cap approach Calculate the income approach to value using the DCF approach Know each line item in the calculation: how to calculate and what it means Know cap rates very well How to account for big repairs Homework Download from website The Income Approach to Appraisal Rationale: Value of a property is the present value of its _________ income. Often called “__________________________” Capitalize : to convert future income into a ______________ Two Approaches to Income Valuation _________ capitalization (with an “overall” rate) Find value as a multiple of ____ year net income (NOI) “Multiplier” is obtained from sales of __________ properties. Discounted cash flow (____) Project net cash flows for a standard _____________ (say, 10 years). Discount at required yield (discount rate) How Does DCF Differ from Direct Cap? DCF models require: 1. An __________ of the expected holding period 2. Estimates of net cash flows over the entire expected holding period, including the ______________________________ 3. The appraiser to select the appropriate yield (required IRR) at which to discount all future cash flows. Pg. 1
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Reconstructed Operating Statement PGI Potential gross income -VCL Vacancy and collection losses +MI Misc. Income EGI Effective Gross income -OE Operating expenses -CAPX Capital Expenditures NOI Net operating income -DS Debt Service BTCF Before-tax Cash Flows -TO Taxes from operation ATCF After Tax Cash Flows Potential Gross Income ( PGI ) Potential gross income: Rental income assuming 100% occupancy Important issue: Contract rent or market rent?
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