The capitalised earnings method is mostly used for rented flats and commercial space. This includes apartment buildings, office and commercial buildings, but also shopping centres, multi-storey car parks and logistics areas.
The starting point is the annual net income. This means the rental income minus the costs for maintenance, management and possible rent losses that the owner has to bear. The next step is to determine the land value. This is usually done with the help of a Comparative value method. The final total income value is calculated from these two factors, the land value of the property and the amount of rental income.
A distinction is made between a simple income capitalisation method and a full income capitalisation method. In the former, the land value and the resulting land value interest are not taken into account. Only the value of the property built on it is included in the valuation.
In the full capitalised earnings value method, the land value return is also included. This is done on the basis of a comparative value method. The property interest rate is used for this purpose. It is determined by the local expert committees on the basis of past property transactions.
In the income capitalisation approach, only the land value is subject to interest at this property rate, not the property built on it. This is because the value of the land is subject to fluctuations; the value of the building, on the other hand, tends to decline with its age and wear and tear. If no permanent and comprehensive investment is made in a building, the achievable rent is also reduced.
Just as with the comparative and asset value methods, circumstances that reduce or increase the value are also included in the calculation of the capitalised earnings value method. If, for example, the buyer of an apartment building must expect to have to replace the roof truss in the foreseeable future, this is already reflected in the purchase price of the property in the form of a reduction.
Is a capitalised earnings method suitable for your property? We would be happy to carry out the valuation for you.
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