Masonry Magazine September 1971 Page. 27
The Income Approach
It is the net income before debt retirement or mortgage costs that the financier will capitalize to arrive at an economic value. Our net income before debt service is $70,000, and we will assume a ten percent capitalization rate. We divide the $70,000 in net income by the decimal equivalent of 10% or .10 and arrive at an economic value of this piece of property of $700,000. If we can borrow up to 75% of the economic value we could receive a loan on the piece of property of $525,000.
This method is called the income approach to financing.
How does a concrete masonry wall effect the economic value of your building? A masonry building will be quieter and more comfortable for the tenants in the building and it will reduce the tenant's insurance rate as well as the owner's insurance rate. Because of these advantages, we may be able to reduce the vacancy rate from 10% to 7% and increase our projected income from $90,000 to $93,000. In other words, we have increased our net operating income by $3,000 and if this increase is capped at 10% this would give us an additional $30,000 in economic value. Our economic value because of a 3% differential in vacancy rate, is now set at $730,000. If we can borrow up to 75% of this amount, we can produce a loan of $547,500 instead of $525,000.
THE INCOME APPROACH TO FINANCING
| | With 10% Vacancy Rate | With 7% Vacancy Rate |
|---|---|---|
| Cross Income | $100,000 | $100,000 |
| Less Vacancy Rate | - 10,000 | - 7,000 |
| Effective Gross Income | $90,000 | $93,000 |
| Less Operating Expense | - 20,000 | - 20,000 |
| Net Operating Income | $70,000 | $73,000 |
| Capped at 10% | $700,000 | $730,000 |
| 75% Loan Limit | $525,000 | $547,500 |
| Wall Thickness | Insulation in Cells | Unit Weight, lb/cf. | | | | |
|---|---|---|---|---|---|---|
| | | 60 | 80 | 100 | 120 | 140 |
| 8" | Filled | 0.12 | 0.14 | 0.18 | 0.22 | 0.35 |
| | Empty | 0.32 | 0.34 | 0.38 | 0.43 | 0.55 |
| 10" | Filled | 0.10 | 0.12 | 0.15 | 0.18 | 0.31 |
| | Empty | 0.26 | 0.31 | 0.35 | 0.40 | 0.52 |
| 12" | Filled | 0.08 | 0.10 | 0.13 | 0.17 | 0.29 |
| | Empty | 0.24 | 0.29 | 0.33 | 0.38 | 0.50 |
| Construction | Warehouse Occupancy | | |
|---|---|---|---|
| | Auto Sales and Service | General Storage | Light Manufacturing |
| Fire-Resistive Concrete Masonry Walls with Concrete Floor and Roof Having a Minimum 2-Hour Fire Rating | $269. | $216. | $205. |
| Typical Packaged Metal Building with 26-Gauge Sides and Roof | $729. | $520. | $638. |
TABLE 1
U-Factors for Single-Wythe Warehouse Walls of Concrete Masonry with Hollow Cells Empty and filled with Bulk Insulation
* Outside surface unpainted (15 mph wind)
Inside surface unpainted (still air)
TABLE 2
Annual Insurance Premium* for $100,000 Warehouse
Based upon survey of 21 cities.
*Premium does not include insurance on building contents.