Module 8 - The Income Approach Objectives 13.1 Introducing Income Property and Its Appraisal 13.2 Gross Rent Multiplier Analysis 13.3 Estimating Gross Income and Market Rent 13.4 Operating Expenses and Expense Ratios 13.5 Reconstruction of the Operating Statement 14.1 Purpose and Theory of Capitalization 14.2 Selection of the Capitalization Rate 14.3 Direct and Residual Capitalization Techniques 14.4 Estimating, Measuring, and Discounting Cash Flows 13.1 INTRODUCING INCOME PROPERTY AND ITS APPRAISAL This section covers the types of income property, the motives and benefits of its ownership, and the methods of appraising it.Types of Income PropertyProperty types usually treated as income property include the following: 1. Multiple residential 2. Commercial stores, offices, hospitals, hotel and motels, etc. 3. Industrial properties, such as warehouses and factories Motives and Benefits of OwnershipTangible Benefits 1. Return onthe investment, usually primarily in the form of income 2. Return ofthe investment, for example, when the property is sold Intangible Benefits 1. Pride of ownership 2. A sense of security 3. Opportunity to apply management skills The Income-Value RelationshipUtility, Income, and Value 1.Utility is a basic characteristic of value. 2. Income is the annual money, or other funds received from an investment. a. Money earns money. b.Stocks pay dividends. c.Real estate produces rent. 3. Value is defined as: a. The present worth of future benefits b. The relationship between the amountof return and rateof return Examples of Monetary Relationships 1. A savings account that earns $100 for one year at 5% interest is worth $2,000 because $100 is 5% of $2,000. a. The income is $100. b. The value is $2,000.
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