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Several methods of capitalization are currently employed by <br /> appraisers. All the methods recognize that the investor is <br /> entitled to both a return on and the recapture of his <br /> investment. <br /> Exploring the Rental Market <br /> The starting point for the appraiser is an investigation of <br /> current market rent in a specific area in order to establish <br /> a sound basis for estimating the gross income which should <br /> be returned from competitive properties. The appraiser must <br /> make a distinction between market rent being the rent which <br /> property is normally expected to bring in the open market, <br /> as opposed to contract rent or the rent which property is <br /> actually realizing at the time of the appraisal due to lease <br /> terms established some time in the past. <br /> The first step then is to obtain specific income and expense <br /> data on properties which best typify normal market activity. <br /> The data is necessary to develop local guidelines for <br /> establishing the market rent and related expenses for <br /> various types of properties. <br /> The next step is to similarly collect income and expense <br /> data on individual properties, and to evaluate the data <br /> ) against the established guidelines. The collection of <br /> income and expense data is an essential phase in the <br /> valuation of commercial properties. The appraiser is <br /> primarily concerned with the potential earning power of a <br /> property. His objective is to estimate its expected net <br /> income. Income and Expense Statements of past years are <br /> valuable only to the extent which they serve this end. The <br /> statements must not only be complete and accurate, but must <br /> also stand the test of market validity. Consideration of <br /> the following factors should assist the appraiser in <br /> evaluating the data in order to arrive at an accurate and <br /> realistic estimate of net income. <br /> Questions Relating to Income Data <br /> Was the reported income produced entirely by the subject <br /> property? Very often the rental will include an amount <br /> attributable to one or more additional parcels of real <br /> estate. In this case, it would be necessary to obtain the <br /> proper allocations of rent. <br />