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Since the justified price paid for income producing <br /> property is no more than the amount of investment required <br /> to produce a comparably desirable return, and since the <br /> market can be analyzed in order to determine the net <br /> return actually anticipated by investors, it follows <br /> that the value of income-producing property can be <br /> derived from the income which it is capable of <br /> producing. What is involved is an estimate of income <br /> through the collection and analysis of available <br /> economic data; the development of a proper <br /> capitalization rate; and the processing of the net <br /> income into an indication of value by employing one or <br /> more of the acceptable capitalization methods and <br /> techniques . <br /> In summary, the Income Approach will be employed in the <br /> appraisal of each property where applicable, and shall <br /> utilize those methods and techniques which are generally <br /> understood and accepted in the assessment/appraisal field. <br /> Value indications derived by the Income Approach (as in any <br /> other approach) , shall be maintained only to the extent that <br /> they comply with the provisions of the North Carolina <br /> General Statues. <br /> The Principles of Capitalization <br /> Capitalization is the mathematical process for converting <br /> the net income produced by property into an indication of <br /> value. The process evolves out of the principles of <br /> perpetuity and termination. Perpetuity affirms that the net <br /> income produced by land will continue for an infinite period <br /> of time. Termination affirms that the net income produced <br /> by a building (assuming normal repairs and maintenance) will <br /> stop after a certain number of years. . .this in effect is to <br /> say that all buildings at some time in the future will cease <br /> to have economic value. <br /> If the income flow produced by a building will terminate in <br /> the future, it is reasonable to suggest that the investor in <br /> buildings is entitled to the return of his investment as <br /> well as a return on his investment. In the capitalization <br /> process, this recovery of the investment is referred to as <br /> recapture. Theoretically, the recovered capital would be <br /> used to replace the present structure when it ceases to have <br /> value. In actual practice, however, the investor usually <br /> uses the return capital for debt service or for reinvestment <br /> in other projects. <br />