Net operating income formula. Actual gross income

INCOME APPROACH TO REAL ESTATE APPRAISAL

The income approach to real estate valuation is currently the most popular in practice, since, firstly, there are often no problems with finding initial information for calculations, and secondly, almost any property is capable of generating income, therefore, it can be valued according to this approach.

The income approach is two main methods:

direct capitalization method
and the discounted method cash flows.

Direct capitalization method is based on the assertion that a piece of real estate must be worth an amount equal to income, received from this object, divided by the capitalization coefficient:

V = CHOD / R

where V is the market value of the property,

CHOD - net operating income,

R - rate (coefficient) of capitalization.

Net operating income is the income received from the commercial use of real estate, after deducting all losses and expenses necessary in the course of operation of the facility. The determination of the CHOD is carried out in three stages.

Stage 1 . Calculated potential gross income (PVD) , i.e. theoretically possible income from the property being valued. The main type of income from real estate objects is rent, therefore, most often, the PVD is determined by the formula:

LDPE \u003d C A * Spol

where CA is the rental rate,

Spol - rentable area.

It is not for nothing that PVD is called potential income; in practice, when real estate is sold, the property owner almost never receives such income, because. unplanned losses, arrears, etc. interfere.

Stage 2 . That is why, at the second stage, it is calculated actual gross income (GIR) , i.e. the kind of real income that is collected in practical activities. The formula for calculating the DVD looks likein the following way:

DVD \u003d PVD - Losses + Additional income

where losses are losses gross income caused by incomplete loading property throughout the year, incomplete collection rental payments, losses due to natural Disasters etc.,

additional income - income brought by the property, but not related to the main method of operation. For example, income from paid car parking mall or payment for a private easement for the owner of an agricultural land plot.

Stage 3 . At the last stage, it is calculated directly net operating income by subtracting operating expenses from the DVD:

CHOD = DVD - OR

where OR is operating expenses.

operating expenses call the current costs associated with the operation of the property, i.e. operating expenses, hence their name. They are divided into fixed and variable.

To fixed operating expenses include those types of expenses that do not depend on the form of operation of real estate or its results. In most cases, fixed costs include land payments (land tax or rent for land plot), property tax (on buildings and structures located on the site), insurance costs, annual depreciation. Note that the tax deductions associated with operating activities(value-added tax, income tax) are not included in the operating expenses for real estate valuation. Even without having accurate information from the customer about the amount of fixed operating costs, it is not difficult to accurately calculate them in the valuation process.

Variable operating expenses are directly dependent on the use of real estate. They include: payments for electricity, water supply, heat energy and other public utilities, costs for the protection of the object, its cleaning, etc. As a rule, these calculations of the value of these costs are carried out on the basis of data provided by the customer.

After determining the CHOD, proceed to the calculation capitalization rates. As is clear from the above example, the capitalization rate should reflect the level of return that a rational buyer would like. There are several methods for determining the capitalization ratio, but to perform this calculation and graphic work, the cumulative construction method will be used.

This method is to increase risk-free rate by the value of all risks inherent in the assessed object.

In order for the return on an asset to be used as a risk-free rate, it must meet the following requirements:

minimum probability of loss of funds;
the duration of the period of circulation, close to the expected period of use of the property being evaluated.

For quite a long time there was no consensus on which of these tools is most suitable for real estate appraisal. But in the early 2000s, Russian appraisers basically came to understand that the best tool in modern Russian conditions are government securities denominated in foreign currency and, above all, Eurobonds, the so-called Eurobonds. It is these papers that fully satisfy the specified conditions, because. these securities have a maximum sovereign rating and a minimum level of risk, for example, in connection with financial crisis August 1998, by this species valuable papers default has not been declared, and they have many tranches with a wide variety of maturities

Therefore, the capitalization ratio using the cumulative construction method can be calculated by adding various types of risk to the risk-free rate.

Types of risks, necessary for accounting in the process of real estate appraisal, are divided into the following types:

inflation risk;
entrepreneurial risk;
liquidity risk;
country risk.

Calculated value inflation risk should reflect the possible losses of the owner of the property from inflation expected during the period of the proposed ownership of the property. Value given risk is taken equal to that predicted by the Government of the Russian Federation and Central Bank Russia's inflation rate in this period.

Entrepreneurial risk is composite, this indicator takes into account the probabilities

changes in the general economic situation,
federal law changes
increase in the number of competing objects,
natural or man-made emergencies,
non-receipt of rent payments,
influence of criminogenic factors,
inefficient management object of evaluation,
the impact of financial audits,
incorrect execution of civil documents related to the object of assessment.

Each of these types of risk is assessed by an expert on a scale from 1 to 5%, after which the average value is calculated, which is then used as a measure of entrepreneurial risk.

The amount of liquidity risk due to the fact that even the best real estate in terms of liquidity lose to other financial assets for reasons, firstly, the obligation state registration transactions with real estate; secondly, real estate is not a subject of mass consumption. Carrying out all the necessary registration activities takes time, which gets in the way of a quick conversion of a property into cash.

Thus, the liquidity risk is directly proportional to the period of exposure of the object being valued and is calculated by the formula:

R l \u003d Rf * (exposure period / 12 months)

where Rf is the risk-free rate;

exposition period - the time interval from the moment the object is placed on the market until the moment the transaction is completed.

Country risk should reflect the probability of investor losses when investing his funds in the economy of a particular country. This information when assessing real estate, it is taken from analytical reports of international rating agencies, such as Moody's, Fitch and Standard & Poor's, which, at the same time as assigning a rating to a sovereign economy, indicate the level of risk corresponding to this rating. It should also be clarified that country risk is taken into account in the capitalization ratio only when assessing real estate for non-residents of the Russian Federation.

Thus, after carrying out the described calculations, the risk-free rate increased by all the indicated risk values, which is the return on invested capital, is obtained. The value obtained in this way is called return on invested capital (i):

where Rf is the risk-free rate,

Rinf - inflation risk,

Rrisk - entrepreneurial risk,

Rl - liquidity risk,

Rstr - country risk (if necessary).

But in addition to income, it is also necessary to take into account the rate of return on invested capital and projected changes in the real estate market.

The value of the projected growth or decline in the market segment to which the property being valued belongs, for the expected period of ownership of the property is determined in the process of market analysis at the stage of collecting initial information.

The rate of return of capital invested in an object, called rate of return on capital can be calculated in the following ways:

ring method,
Hoskold method,
Inwood's method.

Ring method is used if it is possible with a high degree of probability to assume that the return of invested capital will be carried out in equal shares during the entire period of ownership of the object. Then the rate of return of capital can be calculated by the formula:

where n is the estimated period of ownership of the object.

If there is a possibility that the proceeds from the operation of the property will be reinvested at a rate of return equal to the return on the main investment, then to calculate the rate of return of capital is used Inwood's method:

Q = i / ((1+ i )ⁿ)-1)

As can be seen from the formula, this method uses the compensation fund factor function.

In cases where there is no reason to believe that the proceeds will be invested at the same rate of return, then Hoskold method, differs from the previous one in that instead of income on capital, it contains a risk-free rate:

Q = Rf / ((1+ Rf )ⁿ)-1)

Therefore, based on the above, we can write the final formula for calculating the capitalization ratio cumulative construction method:

i = Rf + Rinf + Rrisk + R l ± α *Q

where α is the value of the predicted growth or fall of the market.

In case of expected growth, the “-” sign is taken, and in case of a fall, “+”

The direct capitalization method has both its merits as well as disadvantages. The former include the simplicity of calculations, obtaining most of the information necessary for calculations directly from the customer.

The disadvantages of the method are a continuation of its advantages. The simplicity of calculations, due to the fact that net income for one year is involved in calculating the value, leads to the fact that the direct capitalization method gives the most reliable results in cases where income from the property being valued is stable and varies slightly over the years. If the situation on the appraisal object market is unstable, the cash flows brought by the object change significantly from year to year, then the results of the assessment using the direct capitalization method may not reflect the true state of affairs. i - discount rate;

n - estimated period of ownership of the object;

M - the amount of reversion (resale).

The algorithm for calculating net operating income for the j-th year is identical to what we discussed above. Differences between cash flows attributed to different time periods are due to changes in rental payments, components of operating expenses, etc.

The discount rate should ensure the correct conversion of future cash flows into their present value.

The most commonly used method of its calculation is the method of cumulative construction. In this case, the discount rate will correspond to the return on capital, and is calculated using the formula given earlier:

i = Rf + Rinf + Rrisk + R l + R str

The reversion value or resale value is called the predicted sum of money, for which it will be possible to sell the appraised object at the end of the holding period. This value is calculated using the direct capitalization method of net operating income for the first post-forecast year:

M = CHOD n+1/R

The discounted cash flow method, as already mentioned above, on the one hand, is the most adequate in cases of unstable income from the object, on the other hand, the disadvantage this method is the need for a reasonable forecast for the entire period of ownership of the object.

Thus, in this section, we found out that the income approach is based on recalculating future income from the property being valued for one time period or for the entire period of ownership of the property into its value. The income approach includes the method of direct capitalization and the method of discounted flows, the first of which is best used in stable economic conditions, with constant income values, the second - with noticeable fluctuations in the market to which the object of assessment belongs.

A source of information: lecture material from guidelines on the implementation of settlement and graphic work on the discipline "Evaluation of land and other real estate" / Associate Professor Ph.D. S.I. Komarov. - M.:GUZ, 2012. - 71 p. - chapter "Income approach to real estate valuation"

A real estate appraiser works with the following income levels:

GPV (potential gross income);

ADI (actual gross income);

CHOD (net operating income);

DP ( cash receipts) before taxes.

Potential Gross Revenue (GRP)- income that can be received from real estate, with 100% use of it, excluding all losses and expenses. RTI depends on the area of the property being assessed and the adopted rental rate and is calculated by the formula

PVD \u003d S Ca, (3.2)

where S is the area to be leased, m 2;

Ca - rental rate for 1 m 2.

The lease agreement is the main source of information about income-generating properties. Lease - provision to the tenant (tenant) of property for a fee for temporary possession and use. The right to lease property belongs to the owner of the property. Landlords may be persons authorized by law or the owner to lease property. One of the main normative documents regulating lease relations is Civil Code RF (ch. 34).

The appraiser in the process of work relies on the following provisions of the lease agreement:

Under a lease agreement for a building or structure, the tenant, simultaneously with the transfer of ownership and use of such real estate, transfers the rights to use that part of the land plot that is occupied by this property and is necessary for its use, even when the land plot on which the leased buildings or structures are located is sold to another person ;

If the lease term is not specified in the agreement, then the lease agreement is considered concluded for an indefinite period;

The transfer of property for rent is not a basis for the termination or cancellation of the rights of third parties to this property.

When concluding a lease agreement, the landlord is obliged to warn the tenant about all the rights of third parties to the leased property (servitude, right of pledge, etc.). Otherwise, the tenant has the right to demand a reduction in the rent or termination of the contract and compensation for losses.

Lease agreement for a building or structure

is concluded in writing for a period of at least one year, is subject to state registration and is considered concluded from the moment of such registration;

provides for the terms and amounts of the rent agreed by the parties, without which the lease agreement is considered not concluded.

If the tenant has made at the expense of own funds and with the consent of the lessor, improvements to the leased property that are not separable without harm to the property, then he has the right, after the termination of the contract, to reimbursement of the cost of these improvements, unless otherwise provided by the lease agreement. The cost of inseparable improvements to the leased property made by the lessee without the consent of the lessor shall not be reimbursed.

The lessee has the right, with the consent of the lessor, to sublease the leased property, provide the leased property for gratuitous use, and also make it as a contribution to the authorized capital.

The rental rate, as a rule, depends on the location of the object, its physical condition, the availability of communications, the lease term, etc.

Rental rates are:

Contractual (determined by the lease agreement);

Market (typical for a given market segment in a given region).

The market rental rate is the rate prevailing in the market for similar properties, i.e. is the most likely rent for which a typical landlord would agree to rent and a typical tenant would agree to lease the property, which is a hypothetical transaction. The market rental rate is used in the valuation of full ownership, when, in essence, the property is owned, controlled and used by the owner (what would be the income stream if the property were rented out). The contractual rental rate is used to evaluate the partial property rights of the lessor. In this case, it is advisable for the appraiser to analyze the lease agreements in terms of the terms of their conclusion. All lease agreements are divided into three large groups:

With a fixed rental rate (used in conditions of economic stability);

With a variable rental rate (rental rates are reviewed during the term of the contract, as a rule, in terms of inflation);

With interest rate(when a percentage of the income received by the tenant as a result of the use of the leased property is added to the fixed amount of rental payments).

It is advisable to use the income capitalization method in case of concluding an agreement with a fixed rental rate, in other cases it is more correct to use the discounted cash flow method.

Actual Gross Income (GIR) is the potential gross income less losses from underutilization of space and from the collection of rent, with the addition of other income from the normal market use of the property:

DIA \u003d DIA - Losses + Other income. (3.3)

Usually these losses are expressed as a percentage of the potential gross income. Losses are calculated at a rate determined for a typical level of management in a given market, i.e. market value is taken as the basis. But this is possible only if there is a significant information base for comparable items. In the absence of such, in order to determine the underload (underutilization) ratio, the appraiser, first of all, analyzes retrospective and current information on the property being valued, i.e. existing lease agreements by duration, the frequency of their renewal, the length of the periods between the expiration of one lease agreement and the conclusion of the next one (the period during which the units of the property are free) and on this basis calculates the underutilization coefficient (Knd) of the property:

Knd \u003d (Dn ´ Тс) / Na,(3.4)

whereDn is the share of real estate units for which contracts are renegotiated during the year;

Ts - middle period, during which the unit of the property is free;

Na is the number of rental periods in a year.

The underutilization rate is determined on the basis of historical and current information, therefore, in order to calculate the estimated AWP, the resulting ratio must be adjusted to take into account the possible future space utilization, which depends on the following factors:

General economic situation;

Prospects for the development of the region;

Stages of the real estate market cycle;

Correlation of supply and demand in the estimated regional segment of the real estate market.

The load factor depends on various types real estate (hotels, shops, apartment buildings etc.). When operating real estate, it is desirable to maintain a load factor of high level, since a significant part of operating costs is constant and does not depend on the load level:

To download = 1 - Knd. (3.5)

The appraiser makes an allowance for collection losses by analyzing retrospective information for a specific object with subsequent forecasting of this dynamics for the future (depending on the prospects for the development of a particular segment of the real estate market in the region).

Based on historical and current information, the appraiser can calculate the underutilization and rental loss ratio, and then adjust it to project the actual gross income.

Losses from underutilization and collection of rental payments should take into account other income that can be attributed to the normal use of the property for service purposes, such as tenants (income from the rental of car parking, warehouse, etc.), and which are not included in rent.

Net operating income (NOI)- the actual gross income minus operating expenses (OP) for the year (excluding depreciation):

CHOD \u003d DVD - OR. (3.6)

Operating expenses are expenses necessary to ensure the normal functioning of the property and the reproduction of the actual gross income.

Operating expenses are divided into:

Conditionally permanent;

Conditional variables, or operational;

Replacement costs, or reserves.

Conditionally fixed costs include costs, the amount of which does not depend on the degree of operational workload of the facility and the level of services provided:

Property tax;

Insurance premiums (payments for property insurance);

Salary of service personnel (if it is fixed regardless of the load of the building) plus taxes on it.

Variable expenses include expenses, the amount of which depends on the degree of operational workload of the facility and the level of services provided:

Utilities;

For current repairs;

Service personnel salary;

payroll taxes;

Security costs;

Management costs (usually it is customary to determine the amount of management costs as a percentage of the actual gross income), etc.

Expenses not taken into account in the assessment for tax purposes:

Economic and tax depreciation, which is considered in the calculations income approach as a refund and is considered part of the capitalization rate and not an operating expense;

Loan servicing, which is a financing expense and not an operating expense, i.e. financing should not affect the value of real estate (the assessment assumes typical financing for this type of property, and the impact of atypical financing should be excluded);

Income tax, also not an operating expense (this is a tax on personal income, which may depend on factors (form of ownership, composition of ownership, tax status of the owner) not related to the property being valued);

Additional capital structures typically increase revenue, total cost, or extend economic life. The costs associated with them cannot be attributed to operating expenses.

Entrepreneurial expenses of the property owner that do not result in an increase in the income received from the property are also not classified as operating expenses.

To replacement costs includes expenses for the periodic replacement of wear-and-tear improvements (roofing, flooring, sanitary equipment, electrical fittings). It is assumed that funds are reserved in the account (although most property owners do not actually do this). The replacement reserve is calculated by the appraiser taking into account the cost of depreciating assets, the length of their useful life, as well as the interest accrued on the funds accumulated in the account. If you do not take into account the replacement reserve, then net operating income will be inflated.

In cases where real estate is acquired with the involvement of borrowed money, the appraiser in the calculations uses such a level of income as pre-tax cash receipts.

Pre-tax cash receipts are equal to annual net operating income minus annual debt service costs, i.e. reflect the cash receipts that the owner of the property receives annually from its operation.

Rational management in the field of real estate involves, first of all, ensuring the most productive use of the property as economic resource and finding ways to increase such use. At the same time, it is taken into account that the efficiency criteria for profitable objects should be based on the profitability parameters of the object.

The income approach to the valuation of real estate objects is a set of methods for estimating the value of the object of assessment, based on the determination of expected income from the object of assessment.

The income approach is only used to evaluate profitable real estate, that is, such real estate, the sole purpose of which is to generate income, and it is based on the following principles of real estate valuation:

the principle of expectation (the value of an income-generating object is determined by the current value of future income that this object will bring);
the principle of substitution (the value of a property tends to be set at the level of the effective investment required to acquire a comparable, replacement property that brings the desired profit).

The essence of the income approach is to assess the current (today's) value of future benefits that are expected to bring the operation and possible sale in the future. real estate, i.e. by capitalizing income.

Capitalization of income is the process of recalculating the flow of future income into a final value equal to the sum of their current values. These values take into account:

the amount of future income;
the time when the income should be received;
duration of income.

Definition market value real estate income approach occurs in two stages:

forecasting future income;
capitalization of future income into present value.

Forecasting future income based on the use financial statements owner:

simplified balance;
cash flow statement reconstructed by the appraiser for tasks economic analysis items of income and expenses.

The results of forecasting are summarized in the budget of income and expenses for the operation of the property. The forecasting horizon is chosen by the owner, however, the terms of ownership of the object are most often used. The structure of the budget, the list and sequence of determining income and expenses are presented in table 3.

Table 3. Income and expenditure budget

Name of indicator	Amount, rub.
Potential Gross Revenue (PVD or PGI), including:
contractual annual rent (planned rent)
rolling income
market annual rent (market rent)
other income related to the normal functioning of the property
Loss of income (PD or V&L), including:
Underload losses
Losses in rent collection
Actual Gross Income (DIA or EGI)
Operating (maintenance) expenses (OR or OE), including:
Current operating expenses, incl.
conditionally permanent
conditional variables
replacement reserve

Debt service payments (OD or DS)
Net Gross Income (NCV or PTCF)
Income tax (NPP or Tax)
Net income (NP or ATCF)
Income from the sale of the object (DPO or Rev)

Potential Gross Revenue (GRP or PGI)- the total real estate income that can be received from real estate at 100% employment, excluding all losses and expenses. PVD is equal to the sum of four components:

Contract annual rent (planned rent), PC— part of the potential gross income, which is formed due to the terms of the lease. When calculating this indicator, it is necessary to take into account all discounts and compensations aimed at attracting tenants: such positions may look like additional services tenants, the possibility for them to terminate the contract, the use of the reputation of the building, etc.

Rolling income, PH- part of the potential gross income, which is formed at the expense of clauses of the agreement providing for additional payment by the tenants of those expenses that exceed the values indicated in the agreement.

Market Annual Rent (Market Rent), PM— the portion of potential gross income that relates to vacant and owner-occupied space and is determined on the basis of market rental rates.

Other income, PA- income received from the operation of the property and not included in the rent. Represent income from a business that is inextricably linked to the property, as well as rental income land plots and the frame of the building, not the main premises: auxiliary and technical.

It should be noted that the first three components relate to the use of the main premises of the building, and the fourth - to the free part of the land, as well as to the premises and structural elements of auxiliary or technical purposes.

Loss of income (PD or V&L)- losses due to underloading - due to limited demand or loss of time to change the tenant and losses associated with the delay or termination of regular payments of rent by tenants due to their loss of solvency.

The amount of losses for the forecast year is determined based on the processing of information on the local market for previous years.

It is recommended to calculate losses from underloading or non-payments for each component of the RTI separately:

The calculated value of the coefficient of loss of income from underloading K v , K* v (in fractions of a unit) is determined based on the analysis of the coefficient of underloading (k j) of real estate objects of this type for m j recent months, in the following way:

where k j is the proportion, n is the total number of analyzed objects, Y j is a weighting coefficient that takes into account the difference in the qualities of the j-th object and its management in comparison with the object of evaluation, while it is true

The calculated value of the coefficient of income loss due to non-payments K l , K* l (in fractions of a unit) is determined based on the analysis of the share of premises (a j) of real estate objects of this type and the number of months g j for which the rent was not paid during the past year in the following way:

Example 1 Determine the loss of income from non-payment and underloading, if it is known that: the contractual annual rent (planned rent) is 300 thousand rubles; rolling income - 200 thousand rubles; market annual rent (market rent) - 100 thousand rubles; no other income; analysis of the local real estate market over the past 12 months revealed the following indicators:

Index	Property
Index	1	2	3	4
Coefficient of underutilization of real estate objects of this type (for leased main premises)	0,15	0,20	0,15	0,20
The share of premises of real estate objects of this type for which the rent was not paid during the past year (by leased main premises)	0,10	0,15	0,15	0,10
Number of months for which rent was not paid during the past year (by leased main premises)	1,0	0,5	1,0	0,5
Weighting factor, Yj	0,3	0,25	0,25	0,2

1. Determine the calculated value of the size of the coefficient of loss of income from underloading:

2. Let us determine the calculated value of the size of the coefficient of loss of income from underloading:

3. Determine the loss of income from non-payment and underloading:

Thousand rub.

Actual (Effective) Gross Income (DIA or EGI)- Estimated income with the full functioning of the property, taking into account losses from non-employment, change of tenants and non-payment of rent:

Operating expenses (OP or OE)- These are periodic expenses to ensure the normal functioning of the facility and the reproduction of potential gross income. Operating income is usually divided into:

semi-fixed costs or costs;
conditionally variable costs or costs;
replacement costs or reserves

Conditionally permanent- expenses, the amount of which does not depend on the degree of operational workload of the facility.

Conditional Variables- expenses, the amount of which depends on the degree of operational workload of the facility.

Replacement costs— expenses for the periodic replacement of wear parts of the structure, which are annual deductions to the replacement fund.

Example 2 Determine replacement costs if it is known that: the owner intends to use the property for his own purposes for five years; roof repairs are required every ten years; the cost of repairing the roof is 500 thousand rubles; the last time repairs were made eight years ago.

1. Determine the replacement cost for the first year of ownership:

thousand roubles.

If no replacement costs are foreseen during the expected period of ownership, then depreciation is accounted for, bearing in mind a possible resale (reversion).

Example 3 Determine replacement costs if it is known that: the owner intends to use the property for his own purposes for five years; roof repairs are required every ten years; the cost of repairing the roof is 500 thousand rubles; The last renovation was done two years ago.

1. Determine replacement costs:

Roof repairs will have to be done by the new owner, hence the replacement cost is 0;

2. Determine the decrease in income from the sale of the object (reversion price):

Thousand rub.

Net operating income (NOI or NOI)- net annual return on all capital (own and borrowed) invested in the subject of assessment, calculated as the actual gross income minus operating expenses:

The NPV includes two components: the part attributable to borrowed funds (debt service payments, OD or DS - payments for servicing mortgage loans) and the part attributable to own (gross net income, NPV or PTCF).

In turn, the net income from the operation of the facility (NP or ATCF) is the difference between NPV and income tax (NPP or Tax) and contains net profit(NP) and the amount reserved to ensure the simple reproduction of the wearable object upon expiration of its beneficial use(capital costs, short circuit):

Income from the sale of an object (reversion) is defined as the cash flow received by the investor at the end of the project. The amount of income from reversion is projected:

direct appointment of the absolute value of the reversion;
assigning a relative change in the value of real estate for the period of ownership;
by assigning a terminal capitalization ratio (Rt).

When compiling the reconstructed statement of income and expenses, the following are not taken into account:

business-related expenses;
accounting depreciation;
owner's income taxes

Capitalization of future income into present value carried out using:

the direct capitalization method, which includes gross income multiplier techniques, capitalization ratio techniques, and residual techniques;
the method of capitalization according to the rate of return, which includes direct discounting techniques, model techniques and mortgage investment analysis techniques.

Direct capitalization method relates any income calculated at the end of the first year following the valuation date to the value of the property (V o) by means of a cash flow rate (multiplier or capitalization ratio).

The method includes gross income multiples techniques, capitalization ratio techniques, and residual techniques.

Gross Revenue Multiplier Techniques

The following techniques are used to determine the value of a property:

PVD multiplier technique;
dvd animation technique.

The capitalization procedure for these methods consists in multiplying, respectively, the PVD or RVD by the average market multiplier values characteristic of the type of real estate being assessed.

V o = PGI M PGI (8)

V o = EGI M EGI (9)

Multipliers are determined based on the processing of market data on sales prices (P j) and on income values, respectively, PGI j or EGI j at the end of the year following the date of sale for specific objects, using Yj - a weighting factor that takes into account the difference in the qualities of the j-th object and management in comparison with the object of assessment.

Example 4 Determine the value of the property using the techniques of gross income multipliers, if it is known that: PIA and DIA for the appraisal object are defined as 1270 thousand rubles. and 1020 thousand rubles. respectively; on the local market, the following transactions were recorded with real estate objects similar to the one being assessed:

Index	Deal, thousand rubles
Index	1	2	3	4
Selling price	3 000	5 700	3 700	5 000
Potential Gross Revenue	910	1 750	1 190	1 480
Actual gross income	740	1 410	910	1 220
Weighting factor, Yj	0,3	0,25	0,25	0,2

Let's determine the average market values of the multiplier of the PVD and the multiplier of the RP, using expressions 9 and 10:

Let's determine the value of the property using expressions 7 and 8:

Thousand rub.

Capitalization Ratio Techniques provide for the determination of the value of a property through the capitalization of the CHOD (NOI or I O) by dividing it by the cash flow rate, called total capitalization ratio:

The basis for determining the total capitalization ratio is one of the following techniques:

technique group components property;
technique of the investment group or group of capital components;
debt coverage ratio technique;
Technics comparative analysis;
operating expense ratio technique.

Benchmarking technique consists in processing market data on sales prices P j and net operating income I oj at the end of the year following the date of sale using Yj - a weighting factor that takes into account the difference in the qualities of the j-th object and its management in comparison with the object of assessment:

This method is the most preferable, but requires reliable and complete information about the objects of comparable sales.

Example 5 Determine the value of the property using the technique of comparative analysis, if it is known that: the net operating income of the property is determined in the amount of 910 thousand rubles; on the local market, the following transactions were recorded with real estate objects similar to the one being assessed:

Index	Deal, thousand rubles
Index	1	2	3	4
Selling price	3 000	5 700	3 700	5 000
Net operating income	625	1090	750	1050
Weighting factor, Yj	0,3	0,25	0,25	0,2

thousand roubles.

This method is the most preferable, however, it requires reliable and complete information about the objects of comparable sales.

Technique group component property is based on the assumption that if the property has the physical components of land and building, the total capitalization ratio must satisfy the income requirements of owners of all interests ():

where L is the share of the value of land V L in the value of the market value of the entire object V O , V B is the market value of improvements (buildings), R L is the market value of the capitalization coefficient for land, R B is the market value of the capitalization coefficient for improvements (buildings). V L can be determined using the sales comparison method or the distribution method for land valuation.

Example 6 Determine the value of the property using the property component group technique if it is known that: Local market analysis shows that a similarly sized land plot in the immediate vicinity of the property being valued can be purchased for RUB 500,000; estimated cost construction of a building similar to the appraisal object is 1,500 thousand rubles; the market value of the capitalization coefficient for land is 0.3; market value of the capitalization ratio for improvements (buildings) - 0.20; the net operating income of the appraised object is determined in the amount of 910 thousand rubles.

1. Let's determine the share of the land value in the value of the market value of the entire object:

thousand roubles.

Technique of the investment group or group of capital components is based on the assumption that if there are financial interests of owners of equity capital and creditors in the property, the total capitalization ratio must satisfy the income requirements of owners of all interests ():

where M is the share of the value of borrowed capital V M in the value of the market value of the entire object V O , V E is the market value of equity capital, R M is the market value of the capitalization ratio for debt capital, R E is the market value of the equity capitalization ratio, ML is the amount mortgage loan, EI - the amount of equity. V M can be determined based on the analysis market transactions with properties similar to the property being valued.

Example 7 Determine the value of the property using the technique of the group of capital components, if it is known that: the amount of the mortgage loan is 1,000 thousand rubles; debt service cost — 250 thousand rubles/year; the amount of equity capital invested in the property — 2,900 thousand rubles; the net operating income of the appraised object is determined in the amount of 910 thousand rubles; net gross income - 650 thousand rubles; on the local market, the average price of real estate objects similar to the one being assessed is 4,300 thousand rubles.

1. Determine the share of the cost of borrowed capital in the value of the market value of the entire object:

2. Determine the overall capitalization ratio:

thousand roubles.

Debt Coverage Ratio Technique involves the determination of R O, taking into account the required debt coverage:

where DCR is the debt coverage ratio.

Example 8 Determine the value of the property using the debt coverage ratio technique, if it is known that: the amount of the mortgage loan is 1,000 thousand rubles; debt service cost — 250 thousand rubles/year; the amount of equity capital invested in the property — 2,900 thousand rubles; the net operating income of the appraised object is determined in the amount of 910 thousand rubles; on the local market, the average price of real estate objects similar to the one being assessed is 4,300 thousand rubles.

1. Determine the overall capitalization ratio:

2. Determine the value of the property:

thousand roubles.

Operating expense ratio technique is used in cases where complete information about the objects of comparison is not available, but there is data on DIA and OR:

where K OE is the operating income ratio.

Example 9 Determine the value of the property using the operating expense ratio technique, if it is known that: the RIA multiplier is 4.063; DIA and OR for the object of assessment is defined as 1020 thousand rubles. and 110 thousand rubles. respectively;

1. Determine the overall capitalization ratio:

2. Determine the value of the property:

thousand roubles.

Residue Techniques consist in the capitalization of income related to one of the investment components, while the cost of others is known and can be accurately determined.

The basis for determining the value of a property is one of the following techniques:

land residue technique;
remainder technique for improvements;
balance for equity;
residual technique for borrowed capital.

Land Remainder Technique used in the analysis of the best and most effective use land, determining the cost of improvements, such as the cost of a new building. The use of technology is effective if there is no reliable data on land sales:

Example 10 Determine the value of a property using the land residual technique if it is known that:

the estimated cost of building a building similar to the appraisal object is 1,500 thousand rubles;
the net operating income of the appraised object is determined in the amount of 910 thousand rubles;
the market value of the capitalization coefficient for land is 0.3;
the market value of the capitalization ratio for improvements (buildings) is 0.20.

Determine the value of the property:

Thousand rub.

Remainder Technique for Improvements used in the analysis of the economic feasibility of upgrading or liquidating a building, as it directly measures the contribution of the building to the cost. The use of technology is also advisable for assessing real estate with significant wear and tear:

Example 11. Determine the value of the property using the Residual Improvement Technique if it is known that: Local market analysis shows that a similarly sized land plot in the immediate vicinity of the property being valued can be purchased for RUB 500,000; the net operating income of the appraised object is determined in the amount of 910 thousand rubles; the market value of the capitalization coefficient for land is 0.3; the market value of the capitalization ratio for improvements (buildings) is 0.20.

Determine the value of the property:

thousand roubles.

Remainder Technique for Equity used to assess the full ownership of a newly constructed property:

Example 12. Determine the value of the property using the equity balance technique, if it is known that: the mortgage loan amount is 1,000 thousand rubles; debt service cost — 250 thousand rubles/year; the amount of equity capital invested in the property — 2,900 thousand rubles; the net operating income of the appraised object is determined in the amount of 910 thousand rubles; net gross income - 650 thousand rubles.

Determine the value of the property:

thousand roubles.

Remainder Technique for Leveraged Capital It is also used to assess the full ownership of a newly constructed property:

Example 13 Determine the value of the property using the balance technique for equity, if it is known that: the amount of the mortgage loan is 1,000 thousand rubles; debt service cost — 250 thousand rubles/year; the amount of equity capital invested in the property — 2,900 thousand rubles; the net operating income of the appraised object is determined in the amount of 910 thousand rubles; net gross income - 650 thousand rubles.

Determine the value of the property:

thousand roubles.

Capitalization method by rate of return establishes (using the rate of return on capital as the discount rate) the relationship between the net operating income calculated for each year of the entire forecast period and the reversion cost at the end last year forecast period with the value of the object.

The method includes a number of techniques that differ in the choice of the type of capitalized income and the method of capitalization:

direct discounting techniques;
modeling techniques;
techniques of mortgage-investment analysis.

Direct Discounting Techniques provide the determination of the value of the property through discounting the flows of net operating income (IO) and reversion V On using local (for periods) and average values of the total rate of return Y O:

The average value of the total rate of return is determined by the processing of market information on profitability investment projects associated with the acquisition and profitable use of objects, or using information on the profitability of alternative projects that are closest to the type of objects being assessed in terms of risk level.

To determine the average value of the total rate of return Y O, the following techniques are used:

cumulative construction technique;
technique of comparison with alternative projects;
sales comparison technique;
market data monitoring technique.

Risk summation discounting technique (cumulative construction technique) consists in summing up the values reflecting the degree of risk this project. The general construction structure is as follows:

where Y RF is the risk-free rate, which includes the non-inflationary component and the value of the inflation index; Y R — risk premium, which includes a premium for the following types of risks: physical, legal, economic, financial and social, both external (country risk) and domestic, except for the premium for the risk of low liquidity and the premium for risks associated with financial management, which are isolated in order to emphasize distinguishing feature real estate from others financial instruments; Y L — premiums for the risk of low liquidity; Y FM - premiums for risks related to financial management

Example 14 Determine the value of the property using the risk summation discounting technique, if it is known that: the owner intends to use the property for his own purposes for three years, and then resell it for 4,500 thousand rubles; net operating income from the subject of appraisal is determined in the amount of 910 thousand rubles, 950 thousand rubles, 990 thousand rubles. respectively for the first, second and third year of ownership of the object; risk-free rate - 0.03; country risk premium — 0.06; premium for physical risks — 0.025; premium for economic risks — 0.015; premium for social risks — 0.03; low liquidity risk premium — 0.04; premium for risks associated with financial management - 0.03.

1. Determine the average value of the general rate of return:

2. Determine the value of the property:

Technique of comparison with alternative projects is to search for financial market investment projects with a similar degree of risk for the subsequent adjustment of their rate of return in relation to investments in real estate.

At the same time, for the value of the general rate of return Y O, the range of possible values with the boundaries from below Y 1 and from above Y 2 is determined:

Sales Comparison Technique consists in analyzing data from completed sales transactions in order to recreate the investor's assumptions about the future benefits of owning real estate. Based on the project cash flow scheme, the internal norm project profits.

Market Data Monitoring Technique consists in the analysis of retrospective market data in order to determine the current prospective values of rates of return. At the same time, correlations of trends in the profitability of investments in real estate with trends in other financial market instruments should be used.

Model techniques provide a determination of the market value of the entire property for relatively simple special cases of capitalization of net operating income that does not change over periods, and the value of the reversion value associated with the desired value by predicting its change over time:

where d n = 1/(1+ Y O) n is the discount factor and n = 1/(1- d n) n is the present value of a single annuity.

It uses the same for all periods general norm return, determined similarly to the value of the total capitalization ratio:

where SFF O = 1/S On is the compensation fund coefficient, S On = 1/(1+Y O) n –1 is the future value of a single annuity, Δ O = (V On - V O)/ V O is the value of the relative increment in the value of the object.

This group includes:

equipment without depreciation;
full depreciation techniques;
technology linear depreciation.

Techniques without depreciation applies in two cases: either there is an infinite income stream (SFF O →0), or the income stream is finite, but the sale price of the object is equal to the initial purchase price (Δ O =0), i.e., the initial investment.

The value of such real estate is determined by dividing the net operating income by the appropriate rate of return (12).

Example 15 Determine the value of the property using modeling techniques, excluding depreciation, if it is known that: the owner intends to use the property for his own purposes for three years, and then resell for the purchase price; net operating income from the subject of appraisal is determined in the amount of 910 thousand rubles. for each year of ownership of the object; the rate of return on capital is set at 0.203

Determine the value of the property:

thousand roubles.

Full cushioning techniques are used in cases where operating income provides not only the formation of income on capital, but also a full return of capital (Δ O \u003d -1, R 0 \u003d Y 0 + SFF O).

As a result, (26) takes the following form:

To calculate the compensation fund factor (SFF O), use the rate of return characteristic of the project being evaluated (Inwood technique) or at the risk-free rate (Hoskold technique)

Example 16 Determine the value of the property using Inwood's full depreciation modeling technique and Hoskold's full depreciation modeling technique, if it is known that: the owner intends to use the property for his own purposes for three years, and then resell it for the purchase price; net operating income from the subject of appraisal is determined in the amount of 910 thousand rubles. for each year of ownership of the object; the rate of return on capital is set at 0.10; the risk-free rate is set at 0.06.

1. Inwood technique:

1.1 Determine the overall capitalization ratio:

1.2 Determine the value of the property:

thousand roubles.

2. Hoskold technique:

2.1 Determine the overall capitalization ratio:

2.2 Determine the value of the property:

thousand roubles.

Linear damping techniques used to determine the present value in cases where both the income and the value of real estate change in a known regular way.

To account for changes in the value of an asset, the basic formula Ellwood:

where A is the amount of adjustment.

At the same time, if the value of the object decreases, then adjustment A has a “+” sign, and if the cost increases, then the adjustment will have a “-” sign.

The numerical value of the adjustment is determined by multiplying the relative change in value (Δ O) by the replacement fund factor (SFF O), and general formula for the capitalization coefficient takes the form (26).

Example 17. Determine the value of the property using linear depreciation modeling techniques, if it is known that: the owner intends to use the property for his own purposes for three years, the value of the property will decrease by 12% over the period of ownership; net operating income from the subject of appraisal is determined in the amount of 910 thousand rubles. for each year of ownership of the object; the rate of return on capital is set at 0.10.

1. Determine the value of the relative increment in the value of the object:

2. Determine the overall capitalization ratio:

3. Determine the value of the property:

thousand roubles.

Mortgage investment analysis techniques ensure the determination of the value of real estate, taking into account changes in its value and income, as well as taking into account the conditions of financing. There are two techniques of mortgage investment analysis:

technique of mortgage-investment analysis with discounting;
model analysis technique (Ellwood technique).

Technique of mortgage-investment analysis with discounting is based on the addition of the mortgage principal (V M) to the discounted present value of future cash receipts and resale proceeds of the asset:

where d En = 1/(1+ Y E) n is the discount factor, and En = 1/(1- d En) n is the present value of a single annuity calculated for n periods at a rate of return per equity, Y E is determined by the same techniques as the total rate of return, I E = NOI - DS is the return on equity, V En = V On - V Mn is the cost of reversion for equity, defined as the difference in the total cost of reversion (V On) and the balance of payments on the loan (V Mn).

Example 18. Determine the value of the property using the technique of mortgage-investment analysis with discounting, if it is known that: the owner spent 3,400 thousand rubles on the acquisition of the property under appraisal two years ago; a loan in the amount of 1,000 thousand rubles was received for the purchase of a property. at 13% per annum for six years (annual debt service payment of 250 thousand rubles); the owner intends to use the object of assessment for his own purposes for three years, after which he will resell it for 4,000 thousand rubles; net operating income from the subject of appraisal is determined in the amount of 910 thousand rubles. for each year of ownership of the object; the rate of return on capital is set at 0.10.

1. Determine the balance of the loan at the time of assessment (the third year of the loan) and at the end of the holding period (the fifth year of the loan):

Thousand rub.

2. Determine the value of the property:

Thousand rub.

Model analysis technique (Ellwood technique)

This technique is used for particular cases of constant income and rates of return. This technique is based on the formula for calculating the total capitalization ratio:

where rO — basic coefficient capitalization, which takes as a basis the investor's requirements for the rate of return on equity before adjustments for changes in income and real estate value. If income and real estate value do not change, the base capitalization ratio will correspond to the overall capitalization ratio; P=[(l+Y m) N -1]/[(l+Y m) n -1] is the share of the self-absorbing loan repaid by the end of the n-th period, with a total term of the loan agreement equal to N years (see. above), Y m — effective rate interest on this loan.

The income capitalization method is based on directly converting net operating income (NOR) into value by dividing it by the capitalization ratio.

The capitalization ratio is the rate applied to reduce the income stream to a single amount of value.9 However, in our opinion, this definition gives an understanding of the mathematical essence of this indicator. From an economic point of view, the capitalization ratio reflects the investor's rate of return.

The income capitalization method is applied if:

Income streams are stable positive values;

Income streams are growing at a steady, moderate pace.

This method should not be used if:

Income streams are unstable;

The property is in a state of construction in progress or requires significant reconstruction of the property;

There is no information on actual sales and leases of real estate, operating costs, and other information that makes it difficult to calculate the net operating income and capitalization rate.

The basic calculation formula is as follows:

The main stages of the capitalization valuation procedure:

1) definition of the expected annual (or average annual) income, as the income generated by the property at its best most efficient use;

2) calculation of the capitalization rate;

3) determination of the value of the property based on net operating income and capitalization ratio, by dividing the NPC by the capitalization ratio.

Let's take a closer look at each of the above steps.

I. Calculation of expected net operating income.

A real estate appraiser works with the following income levels 10:

GPV (potential gross income);

ADI (actual gross income);

CHOD (net operating income);

DP (cash receipts) after interest payments on the loan. Potential Gross Revenue (GRP)- income that can be

receive from real estate, with 100% use of it, without taking into account all losses and expenses. LHP depends on the area of the property being assessed and the established rental rate and is calculated using the formula:

The lease agreement is the main source of information about income-generating properties. Lease - provision to the tenant (tenant) of property for a fee for temporary possession and use. The right to lease property belongs to the owner of the property. Landlords may be persons authorized by law or the owner to lease property. One of the main regulatory documents regulating lease relations is the Civil Code of the Russian Federation (Chapter 34).

The appraiser in the process of work relies on the following provisions of the lease agreement:

Under a lease agreement for a building or structure, the tenant, simultaneously with the transfer of the rights of ownership and use of such real estate, transfers the rights to use that part of the land plot that is occupied by this property and is necessary for its use, even if the land plot on which the leased buildings or structures are located , is sold to another person;

If the lease term is not specified in the agreement, then the lease agreement is considered concluded for an indefinite period;

The transfer of property for rent is not a basis for the termination or cancellation of the rights of third parties to this property. When concluding a lease agreement, the lessor is obliged to warn the tenant about all the rights of third parties to the leased property (servitude, right of pledge, etc.). Otherwise, the tenant has the right to demand a reduction in the rent or termination of the contract and compensation for losses.

Lease agreement for a building or structure:

It is concluded in writing for a period of at least one year, is subject to state registration and is considered concluded from the moment of such registration;

Provides for the terms and amounts of rent agreed upon by the parties, without which the lease agreement is considered not concluded;

If the lessee has made improvements to the leased property at his own expense and with the consent of the lessor, which are inseparable without harm to the property, then he has the right after termination of the contract to reimburse the cost of these improvements, unless otherwise provided by the lease agreement. The cost of inseparable improvements to the leased property made by the lessee without the consent of the lessor is not subject to compensation;

Forex classes are a good way for you to prepare for a profitable job in the international foreign exchange market Forex!

The rental rate, as a rule, depends on the location of the object, its physical condition, the availability of communications, the lease term, etc.

Rental rates are:

Contractual (determined by the lease agreement);

Market (typical for a given market segment in a given region).

Market rent represents the rate prevailing in the market for similar properties, i.e. is the most likely rent for which a typical landlord would agree to rent and a typical tenant would agree to lease the property, which is a hypothetical transaction. The market rental rate is used in the valuation of full ownership, when, in essence, the owner owns, manages and uses the property (what would be the income stream if the property were rented out). The contractual rental rate is used to evaluate the partial property rights of the lessor. In this case, it is advisable for the appraiser to analyze the lease agreements in terms of the terms of their conclusion. All lease agreements are divided into three large groups:

With a fixed rental rate (used in conditions of economic stability);

With a variable rental rate (rental rates are reviewed during the term of the contract, as a rule, in terms of inflation);

With an interest rate (when a percentage of the income received by the tenant as a result of the use of the leased property is added to the fixed amount of lease payments).

Income capitalization method it is advisable to use in the case of concluding a contract with a fixed rental rate, in other cases it is more correct to use the discounted cash flow method.

DVD \u003d PVD - Losses + Other income. (4.3)

Usually these losses are expressed as a percentage of the potential gross income. Losses are calculated at a rate determined for a typical level of management in a given market, i.e. market value is taken as the basis. But this is possible only if there is a significant information base on comparable objects. In the absence of such, in order to determine the underutilization (underutilization) ratio, the appraiser first of all analyzes retrospective and current information on the property being valued, i.e. existing lease agreements by duration, the frequency of their re-conclusion, the length of the periods between the expiration of one lease agreement and the conclusion of the next one (the period during which units of the property are free) and on this basis calculates underutilization ratio(K nd) of the property:

D p - the share of real estate units for which contracts are renegotiated during the year;

T s - the average period during which the unit of the real estate object is free;

N a - the number of rental periods in a year.

The underutilization rate is determined on the basis of historical and current information, therefore, in order to calculate the estimated ARR, the resulting coefficient must be adjusted taking into account the possible loading of areas in the future, which depends on the following factors:

General economic situation;

Prospects for the development of the region;

Stages of the real estate market cycle;

Correlation of supply and demand in the estimated regional segment of the real estate market.

The load factor depends on different types of real estate (hotels, shops, apartment buildings, etc.). When operating real estate, it is desirable to maintain a high load factor, since a significant part of operating costs is constant and does not depend on the level of load.

The appraiser makes an adjustment for losses in collection of payments by analyzing retrospective information on a specific object with subsequent forecasting of this dynamics for the future (depending on the prospects for the development of a particular segment of the real estate market in the region):

Based on historical and current information, the appraiser can calculate the underutilization and rental loss ratio, and then adjust it to project the actual gross income:

where K ncp - coefficient of underutilization and losses in the collection of rental payments;

P a - losses in the collection of rent;

P nd - losses from underutilization of space;

PVH - potential gross income.

In addition to losses from underutilization and in the collection of rental payments, it is necessary to take into account other income that can be attributed to the normal use of this property for the purpose of servicing, in particular, tenants (for example, income from the rental of a car park, warehouse, etc.). ), and not included in the rent.

Net operating income (NOI) is the actual gross income minus operating expenses (OR) for the year (excluding depreciation):

CHOD \u003d DVD - OR. (4.7)

Operating expenses are expenses necessary to ensure the normal functioning of the property and the reproduction of the actual gross income.

Operating expenses are divided into:

Conditionally constant;

Conditionally variable, or operational;

Replacement costs, or reserves.

Conditionally fixed costs include costs, the amount of which does not depend on the degree of operational workload of the facility and the level of services provided:

Property tax;

Insurance premiums (payments for property insurance);

Maintenance staff salary (if it is fixed regardless of the building load) plus taxes on it.

Conditionally variable costs include costs, the amount of which depends on the degree of operational workload of the facility and the level of services provided:

Utilities;

For current repairs;

Service personnel salary;

payroll taxes;

Security costs;

Management expenses (usually it is customary to define the amount of management expenses as a percentage of the actual gross income), etc.

Expenses not taken into account in the assessment for tax purposes:

Economic and tax depreciation, which is treated as a reimbursement in the income approach and is considered part of the capitalization rate and not an operating expense;

Loan servicing is a finance cost and not an operating cost, i.e. financing should not affect the value of real estate (the assessment assumes typical financing for this type of real estate, and the impact of atypical financing should be excluded);

Income tax is also not an operating expense (it is a tax on personal income, which may depend on factors (form of ownership, composition of property rights, tax status of the owner) not related to the property being valued);

Additional capital structures typically increase revenue, total cost, or extend economic life. The costs associated with them cannot be classified as operating;

Entrepreneurial expenses of the property owner that do not result in an increase in the income received from the property are also not classified as operating expenses.

Replacement costs include the cost of periodically replacing wearable improvements (roofing, flooring, plumbing, electrical fittings). It is assumed that funds are reserved in the account (although most real estate owners do not actually do this). The replacement reserve is calculated by the appraiser taking into account the cost of depreciating assets, the length of their useful life, and also! interest accrued on the funds accumulated in the account. If you do not take into account the replacement reserve, then net operating income will be inflated.

In cases where real estate is acquired with borrowed funds, the appraiser uses this level of income in the calculations as cash receipts before taxes.

Cash receipts before tax are equal to annual net operating income minus annual debt service costs, i.e. reflect the cash receipts that the owner of real estate annually receives from its operation.

Calculation of the capitalization ratio.

The capitalization ratio is the rate applied to reduce the income stream to a single amount of value.11 However, in our opinion, this definition gives an understanding of the mathematical essence of this indicator. From an economic point of view, the capitalization ratio reflects the investor's rate of return.

There are several methods for determining the capitalization ratio:

Including reimbursement of capital costs (adjusted for changes in the value of the asset);

Market squeeze method;

Linked investment method, or investment group technique.

Theoretically, the capitalization ratio for current income should directly or indirectly take into account the following factors:

Compensation for risk-free, liquid investments;

risk compensation;

Compensation for low liquidity;

Compensation for investment management;

An adjustment for a projected increase or decrease in the value of an asset.

Determination of the capitalization ratio, taking into account the reimbursement of capital costs.

The capitalization ratio consists of two parts:

1) rates of return on capital (rate of return on investment), which is the compensation that must be paid to the investor for the use of funds, taking into account the risk and other factors associated with a particular property;

2) the rate of return of capital, i.e. repayment of the initial investment. Moreover, this element of the capitalization ratio is applied only to the depreciable part of the assets.

Δ - decrease in the value of real estate (wearable part of assets).

Rate of return on capital ( R doh cap) is built most often by the cumulative construction method:

Risk Free Rate of Return + Real Estate Risk Premiums + Real Estate Low Liquidity Premiums + Investment Management Premiums.

The risk-free rate of return is the rate of interest on highly liquid assets, i.e. it is a rate that reflects the actual market opportunities for firms and individuals to invest money without any risk of non-return.

The risk-free rate is used as the base rate, to which the remaining (previously listed) components are added - adjustments for different kinds risks associated with the characteristics of the property being valued.

Risk free rate requirements:

Return on the most liquid assets, which are characterized by relatively low rate profitability, but with a guarantee of return of capital;

Available to the investor as an alternative investment option.

To determine the risk-free rate, one can use both Russian and Western indicators for risk-free operations. The risk-free rate according to the Western methodology is the rate of return on long-term (20 years) government bonds on the world market (USA, Germany, Japan, etc.). When using this risk-free rate, it is necessary to add a premium for the risk of investing in Russia (country risk) to it. This calculation of the risk-free rate is adopted in contemporary practice valuation, but violates the principle of investor accessibility to highly liquid assets, since Russian enterprises cannot seriously consider investing in long-term world market government bonds as an alternative. This risk-free rate was actively used in our country at the first stages of the formation of the assessment, since this period was characterized by uncritical replication of Western experience without taking into account Russian specifics. Now, the yield on OFZ, VEB is more often taken as a risk-free rate.

The country risk adjustment is usually calculated by rating agencies. But this information is not always available to appraisers. In this case, the appraiser can independently determine the country risk for Russia using the developed schemes, but the degree of subjectivity in the calculations increases significantly.

In the evaluation process, it must be taken into account that nominal and real risk-free rates can be both ruble and foreign currency. When recalculating the nominal rate into the real one and vice versa, it is advisable to use the formula American economist and the mathematics of I. Fisher, derived by him back in the 30s of the XX century:

where R n - nominal rate;

R р - real rate;

J inf - inflation index (annual inflation rate).

It is important to note that when using nominal income streams, the capitalization ratio and its components must be calculated in nominal terms, and when real income flows - in real terms.

Risk premium calculation:

low liquidity premium . When calculating this component, the impossibility of an immediate return of investments invested in a real estate object is taken into account, and it can be taken at the inflation rate for a typical exposure time of objects similar to the one being assessed on the market;

real estate risk premium . In this case, the possibility of accidental loss is taken into account. consumer value object, and the allowance can be accepted in the amount of insurance premiums in insurance companies of the highest category of reliability;

investment management allowance . The more risky and complex the investment, the more competent management it requires. It is advisable to calculate the investment management allowance taking into account the underload factor and losses in the collection of rental payments.

The capitalization ratio includes the rate of return on investment and the rate of return on capital. If the amount of capital invested in real estate remains unchanged and is returned when it is resold, there is no need to calculate the rate of return.

If a change in the value of an asset is predicted, then it becomes necessary to take into account in the capitalization ratio the return of the principal amount of capital. The rate of return of capital shows the annual amount of reimbursement of funds invested in the property in the event that, for any reason, the loss of these funds (in whole or in part) during the period of ownership of the property is predicted. To recover the initial investment, a portion of net operating income is set aside in a recovery fund for recapitalization.

There are three ways to calculate the rate of return on capital

(R normal return ) :

Straightforward return on capital (Ring's method);

The return of capital on the reimbursement fund and the rate of return on the investment (Inwood method), it is sometimes called the annuity method;

Return of capital on the compensation fund and the risk-free rate of interest (Hoskold's method).

Ring method.

This method is appropriate when it is expected that the principal will be repaid in equal installments. The annual return on capital is calculated by dividing 100% of the asset's value by the remaining useful life, i.e. is the reciprocal of the life of the asset. Rate of return is the annual share of the initial capital placed in an interest-free replacement fund:

where n is the remaining economic life, in years; R doh cap rate of return on investment, %.

Example. Investment conditions:

Term 5 years;

R doh cap rate of return on investment 18%;

Δ 100%.

Decision. Ring method. The annual straight-line return on capital will be 20%, since 100% of the asset will be written off over 5 years (100: 5 = 20). In this case, the capitalization ratio will be 38% (18% + 20%=38%).

Inwood method is used if the return on capital is reinvested at the rate of return on the investment. In this case, the rate of return as a component of the capitalization ratio is equal to the compensation fund factor at the same interest rate as for investments

Example. Investment conditions:

Term 5 years;

Return on investment 12%.

Δ 100%.

Decision. The capitalization ratio is calculated as the sum of the investment rate of return 0.12 and the recovery fund factor (for 12%, 5 years) 0.1574097. The capitalization ratio is 0.2774097

Hoskold method. Used when the rate of return on the initial investment is somewhat high, making reinvestment at the same rate unlikely. Reinvested funds are expected to generate income at the risk-free rate

Example. The investment project provides for an annual 12% return on investment (capital) for 5 years. Return on investment amounts can be risk-free reinvested at a rate of 6%.

Decision. If the rate of return on capital is 0.1773964, which is the recovery factor for 6% over 5 years, then the capitalization ratio is 0.2973964 (0.12 + 0.1773964).

The capitalization ratio includes the rate of return on investment and the rate of return on capital taking into account the share of the depreciable part of the assets . If the amount of capital invested in real estate remains unchanged and will be returned upon its resale, then the share of the depreciable part of the assets is equal to 0. If the decrease in the value of the real estate is known, then we will build a compensation fund precisely to compensate for the depreciable share of assets. If, when investing in real estate, the investor expects that its price will increase in the future, then it becomes necessary to take into account in the capitalization rate with an increase in the cost of capital investments.

Reducing the value of real estate (Δ), which will occur in P years, takes into account the value of the subsequent resale of the property in the capitalization coefficient.

R cap \u003d R doh cap + Δ R norms return, (4.17)

Δ = 0 if the value of the appraised object does not change,

Δ = + the share by which it is planned to reduce the value of the appraised object if the value of the appraised object decreases,

Δ = - the share by which it is planned to increase the value of the appraised object if the value of the appraised object increases.

Example. The sale of the property is predicted in 5 years for 50% of its original price. The rate of return on investment is 12%.

Decision. According to the Ring method, the rate of return on capital is 20% (100%: : 5 years) 1/2 = 10%. R cap \u003d 0.1 (rate of return of capital) + 0.12 (rate of return on investment) \u003d 0.22 (22%).

In the Inwood method, the rate of return on capital is determined by multiplying the recovery fund factor by the loss percentage of the original property price.

50% loss 0.1574097 = 0.07887.

R cap \u003d 0.07887 (rate of return on capital) + 0.12 (rate of return on investment) \u003d 0.19887 (19.87%).

Example. The required rate of return on capital is 12%. It is predicted that the price increase after 5 years will be 40%.

Decision. In the event of an increase in the value of investment funds, the proceeds from the sale not only provide a return on all invested capital, but also generate a part of the income necessary to obtain a 12% rate of return on investment. Therefore, the capitalization ratio should be reduced taking into account the expected capital growth. Let's calculate the deferred income: 0.4 0.1574 (reimbursement fund factor for 5 years at 12%) = 0.063. The deferred income is subtracted from the rate of return on capital investment and thus the capitalization ratio is determined.

Calculation of the capitalization ratio using the market squeeze method

Based on market data on sales prices and NPV values of comparable properties, you can calculate the capitalization ratio:

where CHOD i is the net operating income of the i-th analogue object; Сi is the sale price of the i-th analogue object.

This method does not separately take into account the return of capital and return on investment (Table 4.1).

With all the outward simplicity of application, this method of calculation causes certain difficulties - information on NPV and sales prices belongs to the category of opaque information.

Calculation of the capitalization ratio using the method of connectednews.

If the property is acquired with equity and debt, the capitalization ratio must meet the return requirements for both parts of the investment. The value of the coefficient is determined by the linked investment method, or the investment group technique. The capitalization ratio for borrowed capital is called the mortgage constant and is calculated

where R m is the mortgage constant;

DO - annual debt service payments;

K is the amount of the mortgage loan.

The capitalization ratio for equity is calculated using the formula:

The overall capitalization ratio is defined as a weighted average of:

R = M R m + (1 - M) R e (4.21)

where M is the mortgage debt ratio.

Example. Equity share 30%; the interest rate on the loan is 12%; the loan is granted for 25 years; the rate of return on equity is 5%, then total rate capitalization is equal to:

a) mortgage constant of a loan provided for 25 years at 12% per annum, 0.127500;

b) the total capitalization rate is calculated according to formula 4.21: R = 0.7 * 0.127500 + 0.3 * 0.05 = 0.08925 + 0.015 = 0.10425 (10.42%).

Thus, the specifics of the income capitalization method are as follows:

The NPC for one time period is translated into the current value;

The reversion price is not calculated;

The capitalization ratio is calculated for real estate using three methods:

■ market squeeze method;

■ the method of determining the capitalization ratio, taking into account the reimbursement of capital costs;

■ the method of linked investments.

Advantages of the income capitalization method are that this method directly reflects market conditions, since when it is applied, they are analyzed in terms of the ratio of income and cost, as a rule, a large number of real estate transactions, as well as when calculating capitalized income, a hypothetical income statement is prepared, the main principle of which is the assumption of a market level of real estate operation.

Disadvantages of the income capitalization method are that

Its application is difficult when there is no information about market transactions;

Gross income);

CHOD (net operating income);

DP (cash receipts) after interest payments on the loan.

1.1. Potential Gross Revenue(PVD) - income that can be received from real estate, with 100% use of it, excluding all losses and expenses. LHP depends on the area of the property being assessed and the established rental rate and is calculated using the formula:

Lease contract- the main source of information about income-generating real estate. Lease - provision to the tenant (tenant) of property for a fee for temporary possession and use. The right to lease property belongs to the owner of the property. Landlords may be persons authorized by law or the owner to lease property. One of the main regulatory documents regulating lease relations is the Civil Code of the Russian Federation (Chapter 34).

The appraiser in the process of work relies on the following provisions of the lease agreement:

Under a lease agreement for a building or structure to the tenant simultaneously with the transfer of ownership and use of such real estate rights to use that part of the land plot are transferred, which is occupied by this property and is necessary for its use, even if the land plot on which the leased buildings or structures are located is sold to another person;

If the lease term is not specified in the agreement, then the lease agreement is considered concluded for an indefinite period;

Lease agreement for a building or structure:

Is in writing for a period of at least one year, subject to state registration and is considered concluded from the moment of such registration;

Provides for the terms and amounts of rent agreed upon by the parties, without which the lease agreement is considered not concluded;

If the tenant produced at his own expense and with the consent of the landlord improvements leased property, inseparable without harm to the property, then he is entitled, after the termination of the contract, to reimbursement of the cost of these improvements unless otherwise provided by the lease agreement. The cost of inseparable improvements to the leased property made by the tenant without the consent of the landlord, non-refundable;

The tenant has the right with the consent of the landlord to rent out the leased property sublease, provide the leased property for free use, and also make it as a contribution to the authorized capital.

The rental rate is usually depends on the location of the object, its physical condition, the availability of communications, the lease term, etc.

Rental rates are:

Contractual (determined by the lease agreement);

Market (typical for a given market segment in a given region).

Market rent represents the rate prevailing in the market for similar properties, i.e. is the most likely rent for which a typical landlord would agree to rent and a typical tenant would agree to lease the property, which is a hypothetical transaction. The market rental rate is used in the valuation of full ownership, when, in essence, the property is owned, controlled and used by the owner (what would be the income stream if the property were rented out).

Contract rental rate used to assess the partial property rights of the lessor. In this case, it is advisable for the appraiser to analyze the lease agreements in terms of the terms of their conclusion.

All lease agreements are divided into three large groups:

With a fixed rental rate (used in conditions of economic stability);

With a variable rental rate (rental rates are reviewed during the term of the contract, as a rule, in terms of inflation);

With an interest rate (when a percentage of the income received by the tenant as a result of the use of the leased property is added to the fixed amount of rental payments).

It is advisable to use the income capitalization method in case of concluding a contract with a fixed rental rate, in other cases it is more correct to apply the discounted cash flow method.

1.2. Actual gross income(PVD) is the potential gross income minus losses from underutilization of space and from the collection of rent with the addition of other income from the normal market use of the property:

DIA = DIA - (Losses + Underutilization) + Other Income

In the absence of such, in order to determine the underutilization (underutilization) ratio, the appraiser first of all analyzes retrospective and current information on the property being valued, i.e. existing leases by duration, the frequency of their renewal, the length of the periods between the expiration of one lease and the conclusion of the next (the period during which the units of the property are free) and on this basis calculates underutilization ratio(Knd) of the property:

K nd \u003d ∑ (D p * T) / N a

where D p - the share of real estate units for which contracts are renegotiated during the year;

T - the period during which the unit of the property is free;

H and - the number of rental periods in a year.

Example: Leased 1000 m 2 .

During the year 365 days: 25 m 2 was not rented for 3 days in January, 100 m 2 for 6 days and 50 m 2 for 10 days in November.

25 / (1000 / 100%) \u003d 2.5%, D p1 \u003d 0.025, T 1 \u003d 3 days

100 / (1000 / 100%) \u003d 10.0%, D p2 \u003d 0.1 T 2 \u003d 6 days

50 / (1000 / 100%) \u003d 5.0%, D p3 \u003d 0.05 T 3 \u003d 10 days

H a \u003d 4 periods

K nd \u003d (0.025 * 3 + 0.1 * 6 + 0.05 * 10) / 4 \u003d 0.29

The underutilization ratio is determined on the basis of historical and current information, therefore, in order to calculate the estimated ARR, the resulting ratio should be adjusted for possible space utilization in the future, which depends on the following factors:

General economic situation;

Prospects for the development of the region;

Stages of the real estate market cycle;

Correlation of supply and demand in the estimated regional segment of the real estate market.

Coefficient of the planned load (use) of the object:

1 - 0,159 = 0,841

The appraiser makes an allowance for losses when collecting payments by analyzing retrospective information on a specific object with subsequent forecasting of this dynamics for the future (depending on the prospects for the development of a particular segment of the real estate market in the region):

Based on historical and current information, the appraiser can calculate overall rate of underutilization and losses in the collection of rental payments with subsequent adjustment to predict the value of the actual gross income:

where K np - coefficient of underutilization and losses in the collection of rental payments;

P a - losses in the collection of rent;

P nd - losses from underutilization of space;

PVH - potential gross income.

In addition to losses from underutilization and when collecting rental payments, it is necessary to take into account Other income, which can be linked to the normal use of this property for the purpose of servicing, in particular, tenants (for example, income from the rental of a car park, warehouse, etc.), and not included in the rent.

1.3. Net operating income(CHOD ) - actual gross income minus operating expenses (OP) for the year (excluding depreciation):

CHOD = DVD - OR

Operating expenses- these are the expenses necessary to ensure the normal functioning of the property and the reproduction of the actual gross income.

Operating expenses share:

1. Conditionally permanent;

2. Conditional variables (operational);

3. Replacement costs or reserves.

To conditionally constant include costs, the amount of which does not depend on the degree of operational:

Property tax;

Insurance premiums (payments for property insurance);

Salary of service personnel (if it is fixed regardless of the load of the building) plus taxes on it.

To conditional variables expenses include expenses, the amount of which depends on the degree of operational workload:

Object and level of services provided:

Utilities;

For current repairs;

Service personnel salary;

payroll taxes;

Security costs;

Management costs (usually it is customary to determine the amount of management costs as a percentage of the actual gross income), etc.

Expenses not taken into account in the assessment for tax purposes:

- economic and tax depreciation, which is considered as a consideration in income calculations and is considered part of the capitalization rate, and not an operating expense;

- Loan servicing is a finance cost, not an operating cost, i.e. financing should not affect the value of real estate (the assessment assumes typical financing for this type of real estate, and the impact of atypical financing should be excluded);

- income tax also not an operating expense.(this is a tax on personal income, which may depend on factors (form of ownership, composition of property rights, tax status of the owner) not related to the property being valued);

- additional capital structures usually increase income, total cost or extend the economic life. The costs associated with them cannot be classified as operating;

- business expenses of the property owner, which do not lead to an increase in income received from real estate, also do not apply to operating.

Replacement costs include the costs for the periodic replacement of fast-wearing improvements (roofing, flooring, sanitary equipment, electrical fittings). It is assumed that funds are reserved in the account (although most property owners do not actually do this). The replacement reserve is calculated by the appraiser taking into account the cost of depreciating assets, the duration of their useful life, as well as the interest accrued on the funds accumulated in the account. Excluding the replacement reserve, net operating income will be overpriced.

When real estate is purchased with borrowed funds, the appraiser in the calculations uses such a level of income as cash receipts before taxes.

Cash receipts before taxes equal to net operating income less annual debt service costs, i.e. reflect the cash receipts that the owner of real estate annually receives from its operation.