A Method for 
Commercial Grievance

An Income Capitalization Grievance is a way to value a Commercial Property using its net income to determine what price a reasonable investor would pay for the property. You can fill in the numbers from your most recent tax return.

Here’s a format; scroll below for links to additional online tutorials for such valuations.

Income Capitalization Calculations, (address here) , Calendar 2018, based on projected costs and income:

Effective Gross Income (rentals)

Apartment 1:  ($  /mo x 12) = $

Apartment 2:   ($  /mo x 12) = $

Total Effective EGI:  ($ - 5% vacancy allowance) = ($                  - $ ) = $

Annual operating expenses (Based on 2018 taxes and costs):

a) Property Tax:
i. City of Hudson:                 
ii. Hudson City School District:                
iii. Columbia County:             
Subtotal: $

b) Utilities:
i. Water bills:
ii. General Security (fire alarm)
iii. Verizon landline (for fire alarm system)        
(add whatever else is a regular maintenance and management expense here)                                     
Subtotal: $

c) Maintenance and Management:
i. Heating plant maintenance       
ii. Hudson Property Mgmt (house checks, garbage coll.)                     iii. Insurance:
(add whatever else is a maintenance and management expense here)
Subtotal:  $

Total annual operating expenses (a + b+c): $

Net Operating Income = ($ - $) = $

Cap rate = (Net Operating Income / price (that is, the new valuation) of property)

Investors are looking for (probably around 7% - 8%, you can check with a local broker)   

(Net operating income for this property/price (that is, the new valuation) of property ) =  cap rate

At a 7% cap rate, valuation would be (Net Operating Income/.07)

Therefore, for investment purposes, property should be valued at ($ /.07), or $ ______

There are helpful online tutorials for doing an Income Capitalization grievance, as well:

“How to Value Property Value with Capitalization Rate”: https://www.thebalancesmb.com/calculating-property-value-with-capitalization-rate-2866800

“How to Estimate Value with the Income Capitalization Approach”: https://www.dummies.com/test-prep/real-estate-license/how-to-estimate-value-with-the-income-capitalization-approach-for-the-real-estate-license-exam/