Building Residual Technique
An income-approach technique that isolates the income attributable to the improvements: land income (land value × land cap rate) is deducted from total net income, and the residual is capitalized to indicate building value.
Related Terms
Land Residual Technique
A land valuation method that estimates land value by capitalizing the net income remaining after deducting the return attributable to the improvements from the property's total net operating income..
Income Approach
A valuation method that estimates a property's value based on the income it generates or is expected to generate.
Capitalization Rate (Cap Rate)
Cap RateThe ratio of a property's net operating income to its market value or sale price, expressed as a percentage.
More in Income Approach
View allGross Rent Multiplier (GRM)
GRMThe ratio of a property's sale price to its gross monthly (or annual) rental income.
Net Operating Income (NOI)
NOIThe annual income remaining after deducting all operating expenses from effective gross income, but before deducting debt service (mortgage payments) and income taxes.
Effective Gross Income (EGI)
EGIPotential gross income minus vacancy and collection losses, plus other income (laundry, parking, late fees).
Discounted Cash Flow Analysis (DCF)
DCFA yield capitalization technique that estimates property value by projecting future cash flows (income minus expenses) over a holding period and discounting them to present value using a market-derived discount rate..