Appraisal Report: Income Approach

The initial Appraisal Report valuation approach that we would like to expound on in this Communique is the Income Approach, which is based upon estimating the future value/income produced from real estate, a business, or other asset.  

In theory the present value of that future income stream is what the investor should be willing to pay to acquire the real estate or business.  This present value can be determined in three generally accepted ways:  specifically, discounted cash flow, direct capitalization, or the multiplier method.

The most common method, discounted cash flow, is a simple variation to net present value calculation in finance in which various inputs are adjusted according to real estate/industry specifics.  Direct capitalization, on the other hand, is done by dividing net operating income by a capitalization rate.  The determination of that capitalization rate is quite user-defined and therefore must be fully researched and explained.

The final method, income multiplier, is found by multiplying the anticipated income by a market accepted multiplier for that risk to determine the value an investor should pay for the real estate or business.

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Respectfully,

Capital Corp Merchant Banking, Inc.