A Model to Decompose Property Rental Multipiers with Regard to the Division Between Land and Building Elements
We propose a new model for the decomposition of rental multipliers for the property building element which also supports valuation of income-producing real properties based on the principle of stability and an un-orthodox application of discounted cash flow analysis. Having regard to the building/land element analytical split of overall property, the proposed model explicitly accounts for the impact of the value of underlying land on the decomposition of rental multipliers, and doesn't require long-term forecasting of income. Key words: market value, valuation, buildings, income, rental multiplier, land, taxes, ad valorem expenditures, discounting. JEL Classification: R30, D03, D40 Citation: Smolyak S. A., 2016, A Model to Decompose Property Rental Multipiers with Regard to the Division Between Land and Building Elements, Real Estate Management and Valuation, Vol. 24, No. 1, pp. 51-63. DOI: 10.1515/remav-2016-0005 1. Conventional models for rental multipliers The market valuation of a building is often performed through a process of direct capitalization, i.e. by multiplying the annual income from the rental use of the building by a rent multiplier (RM). Multipliers can be developed from transactional data on similar buildings, usually for some period preceding the valuation date. However, in the process one must also adjust for the differences between the building being valued and its comparables. To introduce such an adjustment, it is important to know what factors affect the value of the RM and in what way. The associated analysis is usually based on the application of the income approach to the valuation of property. The procedural aspects and effectiveness of such an analysis have been discussed in many research works, among which we can mention books (BROWN 2005; GRIBOVSKY et al., 2003) and research papers tackling the subject of the decomposition of rental multipliers (WINNNICK 1952; AMBROSE & NOURSE 1993; SIVITANIDES et al. 2001; YISHENG, 2004;...