Income approach

Yes. The income approach is used as the leading method for all rented residential buildings with two or more units. It can also be applied supplementarily to owner-occupied single-family homes if third-party rental would be customary in the market.

In the income approach, the sustainably achievable rent is applied — not the current actual rent. Temporary vacancy therefore only affects the value through the rent default risk allowance. However, permanent structural vacancy is taken into account as a value-reducing factor.

The property yield rate is derived by the responsible expert committee (Gutachterausschuss) from actual purchase prices and rents and published in the land market reports (Grundstücksmarktberichte). Where no committee values are available, we derive the rate from comparable transactions and provide a comprehensible justification.

Yes. The income approach is legally standardized (ImmoWertV) and is accepted by courts, tax authorities, and banks as a recognized valuation method. A comprehensible justification of all value inputs is essential.

The present value factor according to § 34 ImmoWertV — formerly called the multiplier — follows the formula (qⁿ − 1) ÷ (qⁿ × (q − 1)), where q represents the property yield rate plus 1 and n the remaining useful life. At 3.0 percent and a remaining useful life of 45 years, a factor of approximately 24.5 results. This represents the greatest leverage effect of the entire procedure: even one percentage point higher in the property yield rate reduces the factor to approximately 20.7.

The market-rental rate achievable in practice is applied, not the contractually agreed rent. If the actual rent is persistently below market rate — for example due to long-term legacy contracts — the difference is not included in the gross income but is deducted at the end of the calculation as a specific property characteristic. Valuers who instead calculate directly with the actual rent will systematically arrive at an undervalued result.

According to § 32 ImmoWertV, these include management costs, maintenance costs, rental vacancy risk, and non-recoverable operating costs. Explicitly excluded are depreciation, financing costs, and passed-through operating costs — a common error in self-calculations that significantly distorts the net income and, consequently, the income value.

The remaining useful life, together with the property yield rate, determines the present value factor and thus directly impacts the building's income value. At a property yield rate of 3.0 percent, 45 years result in a factor of approximately 24.5, while 35 years yield only about 21.5. Conversely, documented modernizations can extend the remaining useful life and increase the value — therefore, their derivation must always be documented in the appraisal report.

The general method (§ 28 ImmoWertV) separates land and buildings: only the building component is capitalized over the remaining useful life, while the land value is added without interest. The simplified method (§ 29) capitalizes the total net operating income and adds the land value discounted to the valuation date. The periodic method (§ 30) models individual payment periods separately and is suitable for properties with highly fluctuating income. In practice, the general method predominates.

The income approach capitalizes a net operating income assumed to be sustainable, using a uniform capitalization factor. The DCF method In contrast, it forecasts the cash flows of individual periods and discounts them along with the residual value at the end of the assessment period. For market value determination according to ImmoWertV, the income approach is decisive; DCF calculations serve as a supplementary tool for institutional investments and properties with uneven income development.