1979-12-28_GENERAL DOCUMENTS - C1981017

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the great majority of real estate investors are heavily influenced by mortgage terms available, weight is given to the impact of financ- ing on value , debt retirement during the term of ownership and the possibility of changes in property value during that period. This method of capitalization also utilizes an overall capita- lization rate. This is thought to be the most valid rate because exercises in judgement by the appraiser are held to a minimum. The economic net income previously developed is capitalized with a single overall rate. There is no necessity of allocating income separately for land and improvements . In the following application of the mortgage-ea_uity concept, the basic assumptions include the availability of a 75% ratio mortgage loan at a 12% interest rate with 30 year amortization. The cash flow, or equity dividend requirement of the equity investor, is projected at a 12% rate of return and the term of investment has been estimated at five years . It has further been assumed that during the five year projec- tion period, the property will gain in value by 10% . This gain is attributed to the inflationary trend affecting the value of the dollar in recent years and also because of anticipated increases in both land values and construction costs in the Glenwood Springs/ Carbondale areas . INCOME APPROACH SUMMARY (Mortgage-Equity) Assumptions : Net Income before Debt Service (as before) $ 167 ,263 Available Mortgage Loan-75% Ratio, 12% Interest 30 Year Amortization Equity Dividend Rate-12% Change in Property Value-5 Year Projection Period + 10% Capitalization: Basic Rate (Ellwood Tables Page 508) . 119813 Less Appreciation ( . 157407 X 10%) . 015740 Overall Capitalization Rate . 104073 Indicated Value - $167 ,263 i . 104073 = $1 ,607 ,169 Surplus Land Contribution $ 400 ,000 INDICATED VALUE - INCOME APPROACH $2 ,007 ,169 (Mortgage-Equity) -16-