Dictionary of Real Estate Terms: building residual technique
building residual technique
an appraisal technique whereby income to land is subtracted from Net Operating Income to result in the building income. Building income is capitalized into building value.
Example: Table 8.
| TABLE 8 | |
| BUILDING RESIDUAL TECHNIQUE | |
| Net operating income | $13,000 |
| Less: Land income | - 5,000 |
| (Land value $50,000 x 10% rate of return) | |
| Building income | $ 8,000 |
| Divided by building rate of return | - .12 |
| (10% + 2% DEPRECIATION) | |
| Building value | $66,666 |
