Cost of Capital of Real Property—Individual Assets

This chapter shows how presents development of the cost of capital for individual real property investments is developed and provides practical applications for the valuation of income-producing assets, such as apartment or office buildings, industrial properties, and development properties. It assists the reader in understanding the differences between the current practices applied in business valuation and those applied in real estate valuation. The income and the cost of capital associated with the ownership of real property rights are the focus of the chapter. The chapter discusses direct capitalization method and discounted cash flow method. The property discount rate can be estimated from overall capitalization rates if the anticipated changes in income and property value are known. Overall rates can be obtained from recent transactions.