Valuation Methods

Question 1

What’s the Investment method and what is it used for?

Answer 1

Properties that have an income stream
Under rented = Term and Reversion
Over Rented = Hardcore and Layer

Question 2

What’s the profits method and what is it used for?

Answer 2

Trade related properties

Turnover - Costs = Gross Profit

Gross Profit - working expenses = Unadjusted Net Profit

Unadjusted Net Profit - Operators Remuneration = Fair Maintainble Operating Profit

Question 3

What’s the DCR method and what is it used for?

Answer 3

Properties that are unique and have a strong lack of comparable evidence.
Value of land assuming planning + Total costs to rebuild + fees - discount for depreciation

Question 4

Residual

Answer 4

Land value.
GDV - Total Development Costs - Profit

Question 5

Term and Reversion

Answer 5

Term = Current rent passing until the next lease event. Capitalise this using an initial yield.
Reversion = Market Rent. Capitalise this into perpetuity using a reversionary yield, which is a slightly higher yield to reflect the risk of achieving market rent.
Add together

Question 6

Hardcore and Layer

Answer 6

Top Slice = current rent until the next lease event.
Bottom Slice = Market rent.
Collate yields from comps and apply a high yield to the top slice in order to reflect the risk .