Long Leasehold Interest Flashcards

1
Q

How would you value a long leasehold interest?

A

Deduct ground rent from the gross rent to calculate the net rent received. Then can either:

  • Capitalise at a yield for the remaining length of the lease
  • Use a dual rate to adjust the valuation to set up a sinking fund, so it is comparable to freehold investments
  • Discounted cash flow (DCF)
  • Capitalise into perpetuity at an adjusted yield to reflect the additional element of risk for the wasting asset
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