Valuation Techniques And Issues 3 Flashcards
How is net rental income calculated from gross income?
Net rental income is calculated by deducting ground rent from gross income.
Formula: Rent received - Ground rent = Net rental income
What is the market value of a leasehold interest?
The market value is calculated by capitalising the net rental income at an appropriate yield for the remaining length of the lease.
Formula: Net rental income capitalised at yield = Market Value of Leasehold Interest
What is a premium in leasing?
A premium is a capital payment made by one party to another, often to secure a leasehold interest or represent fixtures and fittings.
Examples include key money, fixtures payment, and profit rent.
What are typical purchasers’ costs deducted from gross market value?
Typical purchasers’ costs include Stamp Duty Land Tax, agent’s fees, and solicitor’s fees.
Agent’s fees are usually 1% of the purchase price plus VAT; solicitor’s fees are about 0.5% plus VAT.
What does WAULT stand for?
WAULT stands for Weighted Average Unexpired Lease Term, calculated across an asset weighted by the contracted rent.
It’s used in valuing assets or considering investment yield comparables.
How is net effective rent calculated?
Net effective rent is calculated by devaluing a headline rent with a rent-free period, typically on a straight-line basis.
Three approaches: 1. Straight line method, 2. Straight line with time value of cash flow, 3. Use of DCF.
What is a ransom strip?
A ransom strip is a piece of land controlling access to another piece of land, valued at 15% to 50% of the development value it unlocks.
Key case: Stokes v Cambridge (1961) awarded one third of the uplift in development site value.
What is zoning in valuation?
Zoning is a valuation technique used for comparing retail properties, reflecting how rental value decreases away from the street.
It includes principles like halving back and natural zoning.
