The Valuation Approaches Ing. David Slavata, Ph.D Property Valuation

The Approaches Comaparative Comaparative Investment – traditional Investment – traditional Investment – DCF Investment – DCF Residual Residual Profits Profits Cost based Cost based

The Approaches Investment Investment Comparative Comparative Cost - based Cost - based

The Investment Approach Assamption: it is necessary to indicate the positive (net) income. Assamption: it is necessary to indicate the positive (net) income. Typical for estates to rent Typical for estates to rent –Rental buildings –Administrative buildings –Rural land –Garages –Forests

Methods Perpetual annuity Perpetual annuity Discounted cash flow Discounted cash flow Discounted cash flow for the limited period Discounted cash flow for the limited period Discounted cash flow with variable rate of capitalization Discounted cash flow with variable rate of capitalization Etc…. Etc….

Perpetual Annuity PV1 = NI / R PV1…………….Present Value NI………………Net Income R……………….Rate of Capitalisation

Never ending positive income Never ending positive income Constant positive income for never ending period Constant positive income for never ending period Constant rate of capitalisation in never ending period Constant rate of capitalisation in never ending period

Discounted Cash Flow PV2 = SUM (t=1…n) CF t /(1+R) t + PV2 = SUM (t=1…n) CF t /(1+R) t + SP/(1+R) n PV2…..Present value PV2…..Present value CF….….Cash flow CF….….Cash flow SP….….Selling price SP….….Selling price R……….Rate of capitalisation R……….Rate of capitalisation n…….…Period n…….…Period

Variable CF in the years Variable CF in the years Variable rate of capitalisation Variable rate of capitalisation Limited period Limited period With discounted selling price With discounted selling price Without discounted selling price Without discounted selling price

The Comparative approach Assamption: It is necessary to indicate at least one sold estate (comparative) and the second appreciated estate. Assamption: It is necessary to indicate at least one sold estate (comparative) and the second appreciated estate. Homogenues Homogenues Indication of small diferences Indication of small diferences Timeliness Timeliness Market presence Market presence

Samples Flats Flats Family houses Family houses Land for building Land for building Rural land Rural land Cottages Cottages

Comparative methods Direct comparative Direct comparative Using of coefficients Using of coefficients

Direct comparative CVA1 = SPB + D CVA1…………..Comparative value of A SPB……………..Selling price of B D…………………. Differences in EUR

Coefficients CVA2 = SPB x a CVA2……….Comparative value of A SPB………….Selling price of B a………………The differences in hundreths

Cost Based Assamption: it can be used mostly for valuating of buildings, where it is possible to indicate the cost of construction Assamption: it can be used mostly for valuating of buildings, where it is possible to indicate the cost of construction Heterogenues Heterogenues No market No market

Samples Buildings of churches Buildings of churches Destroyed buildings Destroyed buildings Technical infrastructure Technical infrastructure

Methods Contractors Contractors Accounting Accounting Technical and economical indicators (DRC) Technical and economical indicators (DRC)

Depreciated replacement cost DRC = RC – D DRC………….Depreciated replacement costs of building RC…………….Replacements costs of building D………………Depreciation