KJCKorea
Journal Central

@article{ART001256050},
author={Jeong Keun Ahn},
title={Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities},
journal={Korea Real Estate Review},
issn={2092-5395},
year={2008},
volume={18},
number={1},
pages={9-30}

TY - JOUR
AU - Jeong Keun Ahn
TI - Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities
JO - Korea Real Estate Review
PY - 2008
VL - 18
IS - 1
PB - korea real estate research institute
SP - 9
EP - 30
SN - 2092-5395
AB - To value income property by using the equity-mortgage capitalization method in an inflationary environment can cause the problem to underestimate overall capitalization rate so that the market value of subject property is overestimated than its actual earning power. Alternatively, mortgage lenders use the concept of mortgage debt coverage and related mortgage terms as a means for computing an overall capitalization rate. This paper calculated overall capitalization rates of commercial and residential properties by using the debt coverage method. The calculation results revealed that the magnitude of commercial property capitalization rates ranging from 7.40% to 10.66% is more lower than that of residential property capitalization rates ranging from 9.28% to 13.10%. The comparative analysis between commercial property capitalization rates and residential property capitalization rates was carried out. The debt coverage method can be utilized to estimate the market value of subject property. Also mortgage lenders using the debt coverage method can compute easily the loan amount that they are willing to lend subject to the constraints of net operating income, annual mortgage constant, and debt coverage ratio. As the band-of-investment method and the debt coverage method have the equivalent structure, it is easy to derive the equity dividend rate implied in the debt coverage ratio which is the required rate of return of the equity investor from the two equations. If the dividend rate is sufficient to meet the required rate of return of the equity investor, the lender can use the debt coverage ratio in negotiating mortgage terms with other variables.
KW - capitalization rate;debt coverage method;income approach;mortgage-equity capitalization method
DO -
UR -
ER -

Jeong Keun Ahn. (2008). Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities. Korea Real Estate Review, 18(1), 9-30.

Jeong Keun Ahn. 2008, "Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities", Korea Real Estate Review, vol.18, no.1 pp.9-30.

Jeong Keun Ahn "Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities" Korea Real Estate Review 18.1 pp.9-30 (2008) : 9.

Jeong Keun Ahn. Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities. 2008; 18(1), 9-30.

Jeong Keun Ahn. "Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities" Korea Real Estate Review 18, no.1 (2008) : 9-30.

Jeong Keun Ahn. Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities. Korea Real Estate Review, 18(1), 9-30.

Jeong Keun Ahn. Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities. Korea Real Estate Review. 2008; 18(1) 9-30.

Jeong Keun Ahn. Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities. 2008; 18(1), 9-30.

Jeong Keun Ahn. "Estimation of Capitalization Rates by the Debt Coverage Method and their Practical Applicabilities" Korea Real Estate Review 18, no.1 (2008) : 9-30.