Income capitalization approach: how does the calculation work?

The capitalised earnings value method determines the capitalised earnings value of the property and is used to value properties that are expected to generate an economic return. The capitalised earnings value is meaningful when yield considerations are at the forefront in the case of rented properties and commercial properties. Capital investors and investors in particular can use the capitalised earnings value to compare alternative forms of investment. In the case of commercially used or rented properties, the determination of the capitalised earnings value is also the basis for the mortgage lending value of the property.

Market value of the land and the building income value

The capitalised earnings value method divides the property into the market value of the land and the building income value. This includes rental income, maintenance costs and costs for managing the land and building. Accordingly, the rental income less the management costs and the land value including its interest are compared.

Calculation example: Income value – simply calculated with Lukinski

For the calculation of the income value of your property, we assume the following information as an example. This information can then be used to calculate the values of the gross annual amount and the annual net income as well as the operating costs.

• Area: 200 square meters
• Price: 7 euros per square meter
• Operating costs: 25 percent
• Property interest rate: 7 percent
• Land value: 100.000 Euro
• Building damage: 3.000 Euro
• Expiry date: 12,50

Calculation of annual gross amount, annual net income and operating costs

• Annual gross profit = 200 sqm * 7 Euro / sqm * 12 months = 16.800 Euro
• Operating costs = 16,800 euros * 25 percent = 4,200 euros
• Annual net income = 16,800 Euro – 4,200 Euro = 12,600 Euro

So after deducting the costs, 12,600 euros are left over from the annual rental income. The following continues to apply:

• Land value interest = 7 percent * 100,000 euros = 7,000 euros
• Preliminary capitalised earnings value = 12,600 Euro – 7,000 Euro = 5,600 Euro

Calculation: Building income value and capitalised earnings value

For the building income value, the provisional income value is multiplied by a multiplier. The multiplier is a key figure calculated from the property interest rate and the remaining useful life. The longer the remaining useful life of the building, the higher the multiplier. To determine the income value, any structural damage is then deducted from the building income value and the market value of the land is added.

• Building income value = 5,600 Euro * 12.50 (multiplier) = 70,000 Euro
• Earned value = 70,000 euros – 3,000 euros + 7,000 euros = 74,000 euros

Let the professionals do the math

Our team of investors will be happy to draw up yield calculations for your desired property. Prospective buyers can be convinced of good returns. Upon request, we will inform you of the data required for the calculation. After receipt of the documents, we take over the determination of the capitalized value and give you a first estimate of the yield.

Valuation for the sale of real estate

All important information about the valuation of real estate sales summarized for you: Valuing a property.

Material value method: Value for the new construction of a property

The calculation first uses the standard land value to determine the market value of the land, then the real value of the building is added.

The real value of the building is calculated on the basis of the building’s production costs less any reductions for age. The real value of the land (market value of the land) and the real value of the building are added together and multiplied by a real value factor.

Value in kind = (100,000 Euro + 150,000 Euro) * 0.5 = 125,000 Euro

The calculation of the asset value factor is based on the building type, the preliminary asset value and the standard land value. The total tangible asset value determined in this way indicates the financial resources that would be required to rebuild the property.

• Real value method

Comparative value method: Comparison of similar properties

The comparative value method compares your property with similar properties. It is used in particular for the sale of owner-occupied apartments and houses. The comparative value can also be determined for undeveloped land.

Price per square metre of the comparable property = 300,000 Euro / 100 sqm = 3,000 Euro per sqm

Purchase price of the property to be valued = 3,000 Euro * 200 sqm = 600,000 Euro

Only properties in similar locations and with a comparable layout are considered in the comparison. The properties included in the valuation should come from the immediate vicinity of the residential property. The comparative value method is considered to be particularly realistic. It is frequently used to determine the value of properties because the locations are relatively comparable from a regional point of view.

• Comparative value procedure

Value appraisal (costs)

Who prepares appraisals for real estate? What does a house appraiser cost? What does an appraiser for old buildings cost? Unless legal regulations require the appointment of an expert, a real estate appraisal will provide you with a realistic valuation of your property in the regional and national market. We provide timely and accurate valuations of land, residential and commercial properties.

However, if the valuation is to be presented in court, for example in the case of a divorce, experts must be consulted for a fee. The residential or rental property is inspected on site. As a rule, both a written and a digital copy of the appraisal are issued.

• Valuation report

Insurance for house construction – for your safety

Most people are not aware that builders are generally liable for damage and accidents regardless of actual fault. Some insurances must therefore be taken out in advance to protect against risks so that the dream of owning your own home does not become a nightmare. But which insurances are obligatory to take out before the start of construction so that you can protect yourself?

Builder’s liability insurance – protection against accidents

Although your home is normally built by an external company, you are still liable for any damage caused by the construction site. If the excavation pit is not properly secured and a child falls in and breaks an arm, you are liable for the damage, even though it was not your fault. As the builder, you are legally obligated to ensure that the construction site is safe and to restore it if necessary. Private liability insurance does cover such damage, but only for very small construction sums up to 50,000 euros. In the case of a conversion or modernisation, this sum is sufficient, but you cannot build a new building from it. Therefore, protect yourself in advance with a so-called builder’s liability insurance. This takes over such damages and covers a building sum of usually 250,000 – 300,000 euros. Better be on the safe side, because an accident can happen faster than you think. Even if you have convinced yourself of the safety, you are probably not a professional and cannot assess the risk that exists. So that you do not expect any unpleasant surprises, take out the insurance before you start building.

Fire shell insurance – 2 in 1 insurance

Since the construction of a house usually takes a few months, the shell is exposed to a fire hazard. Damage to the shell by fire, lightning strikes or even explosions can cost the builder several 10,000 euros and delay the construction enormously. A lightning strike which causes a fire can lead to the fact that with the house building again completely from the beginning must be started. A bad idea, which is unfortunately more often reality, than one thinks. So in order to protect yourself as a builder against this danger, there is the fire shell insurance. With a normal house such damages would be covered by the building insurance, but not with a shell construction. Many insurance companies therefore offer fire shell insurance, which transfers directly to home insurance once the build is complete. A very good deal, then, in which you can cover many insurance claims during and after construction with one insurance policy. However, such insurance is not only important for you for financial and security reasons, but is also often required by banks in the loan, so that the construction loan is approved at all. Find the best rates: mortgage rates.

Construction work insurance – additional protection

A supplement to the fire shell insurance is the building performance insurance, because this takes over further cases that are not included in the fire shell insurance. Here, cases are insured, such as storm or flood damage, but also vandalism or construction and material defects are included. If materials are stolen from the building shell or if there is a riot in the building shell or things are broken into and destroyed, the building performance insurance will pay for the damages. These cases also happen more often than expected and it is better to protect yourself against them and play it safe than to run the risk of incurring additional costs.

Construction worker accident insurance – Insurance for helpers

When finishing the interior of the house, many builders rely on construction helpers, who can be friends or acquaintances, to save money. Acquaintances, family and friends who have experience in the field and know a thing or two about interior finishing are happy to help and thus facilitate the budget of the builder. However, it becomes problematic if the construction helpers get injured. If someone falls off a ladder or injures themselves with a tool, the first question is what insurance will cover it. In professional construction companies, the workers are covered by public liability insurance and accidents or injuries are covered by this. With construction workers, this is not the case and legally, the builder is liable first for accidents that happen in his home. Depending on the accident there can be huge costs to builders that were not factored in. So, anyone who is thinking of saving construction money by enlisting the help of friends or acquaintances to help with the interior work should consider in advance whether construction worker’s compensation insurance is not an option that should be used. It is better to invest a little money in insurance than to run the risk of being liable for damages yourself.

Liability insurance for land – Insuring against construction delays

Before the construction of a house can begin, a suitable plot of land must first be found. Since the plot is usually the first thing that is acquired, it is also the area that stands empty the longest. So, due to construction delays or the like, the already purchased plot is sometimes empty for months. Nevertheless, you are the owner and as the owner you have obligations that you must follow even if you are not yet using the property or living on it. For example, as the owner, you are required to shovel snow and clear and grit the sidewalks in the winter. If you don’t do this and someone slips and is injured, you are liable for the damage that occurs on your property. So take out liability insurance for your property when the start of construction is delayed or when there is a risk of such damage, for example when building in winter.

Compare insurances – find the best offer

In order to protect yourself from risks and additional costs besides the enormous costs for your own home, you should therefore consider some insurances that make sense for you depending on your life situation and house construction. Before you take out these insurances, however, you should find out exactly what is really included in the respective insurance and which offer is the best for you. Both online and with consultants, you can compare different insurance with each other and thus increase your chance of a cheap insurance. Even if the benefits of different insurance companies are usually similar, the insurance premiums differ enormously, which is why it is worth looking closely and compare. So play it safe, compare insurances and find the perfect one for you that can protect you from all possible risks and unexpected expenses.

Water damage – insurance, cause and your rights

Whether it’s a leaky roof, a clogged drainage system or a faulty water pipe. Moisture is never a good sign, but some damage can be repaired more quickly than others. So as soon as you notice the consequences of possible water damage in your property, it’s time to act, because water and moisture spread faster than you think.

Causes of water damage – roof, drainage or a pipe after all

First of all, it is important to find out where the moisture comes from. And there are a variety of causes for this. Whether a leaking roof or a burst pipe. Depending on the cause, there are various ways to treat the water damage. Consult an expert and get good advice.

Damage to the roof

Often, damaged roof coverings or boggy roofs are the reason for moisture in the house. To prevent water damage caused by roof damage, you should regularly inspect all roof surfaces, whether flat or pitched, for damage. Particularly important places are chimneys, light and ventilation openings but also skylights. After heavy storms or thunderstorms it is worth checking the roof itself. A look out of the skylight or from some distance with binoculars allows you to discover even slipped or missing tiles or damage. A residential buildings insurance policy with storm and hail risk protects you from such damage. This covers the costs of roof repairs and renovations in the house after the penetration of moisture after rain, hail or storm.

Damage to the rain gutter or downpipe

Damage to broken or clogged gutters or downspouts can also result in water damage. During rain or thunderstorms, it is therefore worthwhile to check the rain gutter regularly. Leaks are easy to spot and major damage can be prevented. With rain gutters you should pay particular attention to the fact that they are usually not broken or have a leak, but are simply heavily contaminated with leaves, moss or dirt. The rainwater can then no longer drain off well and a backwater occurs which leads to the water overflowing. This can also cause water damage. Avoid this problem best by good maintenance of your gutters and remove leaves and dirt from them regularly.

Damage to the drainage

A drainage system can cause water damage if the ring drain is missing or blocked and the seepage water can no longer be properly drained. Soaked floors or walls can then be the result. You can prevent this with a moisture measuring device. This quickly checks whether there is water damage or not. You should invest in such a device, because the earlier water damage is detected, the lower the follow-up costs. Our investment guide shows all factors.

Damage to the water pipe

Damage to a water pipe is probably the most common reason for water damage. If you notice damp patches on ceilings or walls, you should check immediately to see if it is a faulty pipe. Check this by not using any water throughout the house. Neither at the tap, the dishwasher or washing machine, nor the toilet flush. If the water meter continues to show consumption, there is a leak in the line somewhere. Notify your homeowner’s insurance company immediately. This will cover the costs in the event of water or heating pipe damage.

Damage to the backwater protection of the sewage pipe

There is a so-called backwater level if construction is carried out below this level and pipes are laid, it must be clarified whether the backwater level is specified in the wastewater statutes. This backwater level is usually the upper edge of the street. In the event of exceptionally high precipitation, it can happen that water then backs up inside the house. In order to prevent this, there is the backwater protection of the sewage pipe which in this case leads the backed up water back into the sewage mains and thus prevents water damage in your house. So, check this fuse regularly, if any, to avoid such damage. These damages are not covered by the homeowners insurance and require the conclusion of a special natural hazards insurance.

Storm damage & rainwater – who is responsible for the damage?

Particularly heavy thunderstorms and rain lead again and again to flooded cellars and water damage. Especially in rented apartments, the question always arises afterwards who will take over the damage if the insurance does not take effect. In some cases, the tenant is in other but also the landlord to remove the damage, which depends in particular on what the damage is due.

If the damage can be attributed to faulty behaviour on the part of the tenant, he must also pay for it. For example, the tenant is obliged to ensure that no water enters the apartment through open windows during longer absences. It is also his duty to keep the balcony drain clean so that no water can enter through the balcony during a heavy thunderstorm. If he does not comply with these obligations and water damage occurs due to the tenant’s negligent behaviour, he must be liable for the damage.

The landlord, on the other hand, must generally pay for water damage caused by rain, storm or tempest and also remove it. Damage to furniture or furnishings caused by water damage must only be borne by the landlord if he is responsible for it. Such a case occurs, for example, if the landlord has not taken care of leaks in insulation, although the tenant has drawn his attention to it.

Insurance – what water damage is covered?

Water damage is not necessarily covered by insurance. It depends on the cause of the water damage whether the insurance will cover it or not. So before you take out an insurance policy, find out what is included. Building, storm and household insurance only cover water damage under certain conditions.

Water damage due to tap water

If the water damage was caused by tap water, for example, by a broken pipe or the like, the building and contents insurance usually takes over the cost of repair without any problems.

Water damage due to sewage

Water damage caused by sewage is only covered in certain cases. In such cases, the building and household insurance will only cover the costs if the water has leaked from a drainage pipe of the water supply. In this case, however, the insurance usually covers the costs without any problems.

Water damage due to a leaking roof or rainwater

Water damage of this kind is not normally covered by buildings insurance. This is because it only applies if the water has leaked from a water supply pipe system and not if it has entered through the roof. In this case, you could fall back on storm insurance if necessary. However, this only protects damage caused by a storm with a minimum wind speed of 60 km/h. In this case, the damage is not covered. In this case, the damage is insured if fixed building components such as roof tiles or well-sealed windows or exterior doors were damaged by the storm. In all other cases, the owner must pay for the damage himself.

Water damage due to flood

Water damage caused by floods must be insured separately and is not included in the building and household insurance. Flooding in this case means the inundation of land and soil caused by water bodies that have overflowed their banks.