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• -- -- - --------�i <br /> 'i <br /> i <br /> _ I Capitalization Process i <br /> The best method of ascertaining the overall capitalization { <br /> rate is to use the Mortgage Equity Technique for it <br /> considers the actual financing and market conditions. The <br /> � typical investor is interested in the net income remaining � <br /> � after debt service; thus , mortgage interest rates are a � <br /> major influence in determining a property' s estimated value � <br /> and feasibility. ! <br /> I <br /> It was found that mortgage money was available for this type <br /> � property at 11$ interest based on a 20 year amortization � <br /> I period in an amount up to 70$ of the value . ThQ interest � <br /> irate is kept stable for a three to five year period, then � <br /> ,, adjusted based on the market. In that interest rate fluctu- <br /> !; ations cannot be accurately predicted, this item is not i <br /> �; I1. <br /> changed. Then the mortgage constant, the amount necessary <br /> to amortize the lban over the full ! <br /> �� period, is 12 . 39$ . In i <br /> I today' s market, investors are accepting a return on equity <br /> � of 10$ or less due to the advantage of tax write-of f and a i <br /> I hedge against inflation. An 8$ return would be in line. � <br /> j� <br /> i Taxes are not part of the expense statement but are <br /> calculated at the level of valuation (which is one-third of � <br /> �' i <br /> value ) times the local rate of 8 . 1636. i <br /> � <br /> Compensation must be made for equity build-up, which is to I <br /> ' account for that part of the payment that is attributed to <br /> . �. <br /> the principal . � This is found by using a safe rate of return I <br /> such as that on one year certificates of deposit, at this <br /> time 8$ times the sinking fund factor ( . 0204 ) , for the �!' <br /> i� <br /> mortgage portion of the value or 70g. <br /> il <br /> i'; �. <br /> i: <br /> Then - � <br /> � <br /> j <br /> j' Mortgage .70 x . 1239 = .0867 �' <br /> I'� <br /> I' <br /> � E uit <br /> q 3 - � <br /> Y . 0 x . 08 <br /> .0240 <br /> Taxes . 333 x . 0816 = . 0272 <br /> i, <br /> . 1379 <br /> � <br /> Less Equity Build-Up .70 x . 0204 = .0143 � <br /> (', <br /> ' Weighted Average - Overall Rate . 1236 i <br /> ; <br /> ;', Applying this rate to net income: <br /> �, I'. <br />, 56, 395 � . 1236 or <br /> ; <br /> Indicated Value by the �, <br /> ! Income Approach ( rounded) . . . . . . . . . . .552, 000. ' <br /> i <br /> i <br />, � <br />�I 1 <br /> 25 <br /> ; <br /> � ���' '-- <br /> --------_------- <br /> ------------- - -------- _-------__--------------- <br /> n-�rt�r��cc . ^ _, ^n,^rrnc <br />