Capitalized earnings value

Income Value - The income value (also known as the capitalized income value) is the value of a property determined on the basis of expected future income (rental income minus operating costs). It is the key result of the income approach, one of the three standardized valuation methods under the Real Estate Valuation Ordinance (ImmoWertV). The income value reflects what an investor would be willing to pay if they viewed the property exclusively as an investment property-separate from any personal interest in using it.

Calculation of the Income Value

The income value consists of the land value and the building income value:

Step 1 - Determine the annual gross income: All actual or achievable market-rate rental income for one year (net base rent × 12 months)

Step 2 - Deduct operating costs:

• Administrative costs: approx. 3-5% of gross income
• Maintenance costs: approx. 7-14 euros/m² of living space per year (depending on age and condition)
• Risk of rent loss: approx. 2-4% of gross income = Annual net income of the building

Step 3 - Deduct land value return: Land value × property interest rate = land value return = Net building income

Step 4 - Apply multiplier: Net building income × Multiplier (depending on remaining useful life and property interest rate) = Building income value

Step 5 - Calculate income value: Building income value + Land value = Income value

Simplified example (multi-family house in Nuremberg):

• Annual gross income: €60,000
• Operating costs (25%): - €15,000
• Annual net income: €45,000
• Land value: €200,000; property interest rate: 3.5%
• Interest on land value: - €7,000
• Net building income: €38,000
• Multiplier (50-year RND, 3.5%): × 22.0
• Building income value: €836,000
• Income value: €836,000 + €200,000 = €1,036,000

Income Value vs. Market Value vs. Asset Value

The income value is not identical to the market value (fair market value):

Term	Definition	Application
Income value	Present value of future income	Investment properties, appraisals
Market Value / Fair Market Value	Achievable in normal business transactions	General valuation
Cost Value	Construction costs minus depreciation	Single-family homes, owner-occupied properties

In practice, the market value often exceeds the income value when investors are willing to pay a premium for scarce properties (“collector’s value”). During periods of high rents and low property interest rates, the income value and market value can be very close.

Typical Factors Influencing the Income Value

The income value is particularly sensitive to changes in three parameters:

Rent increases: If the net base rent rises by 10%, the annual net income also increases by approximately 10%-and thus the income value proportionally. In the Nuremberg metropolitan area, rents in prime locations have risen significantly in recent years, which often makes existing income value calculations from outdated appraisals appear too low.

Capitalization rate: A change in the capitalization rate of 0.5 percentage points can alter the income value by 10-20%. Since interest rates began rising in 2022, capitalization rates have increased slightly, which has tended to lower income values.

Remaining economic life: A longer remaining economic life significantly increases the capitalization rate and thus the income value. Renovations can extend the remaining economic life and thereby increase the income value.

Practical tip for owners in Nuremberg and Franconia

In Nuremberg and the metropolitan region, property interest rates for multi-family homes in central locations have fallen in recent years-resulting in higher income values on paper. We recommend that sellers of investment properties have a professional income value calculated and use this as a basis for argumentation in price negotiations. At the same time, buyers should verify whether the purchase price corresponds to a realistic income value-and not react solely to emotional incentives. The Nuremberg Appraisal Committee publishes current property interest rates for the region annually.

Frequently Asked Questions

For which properties is the income approach suitable?

The income approach is suitable for all properties where rental income is the primary focus: apartment buildings, mixed-use buildings, commercial properties, and hotels. For owner-occupied residential properties (single-family homes, condominiums), the cost approach or sales comparison approach is more commonly used.

What is the property interest rate and where can I find it?

The property yield rate is the market-standard expected return for a specific type of property and location. It is determined by the Appraisal Committee based on purchase price transactions and published in the annual real estate market report. In Nuremberg, property yield rates for multi-family homes in good locations range from approximately 2.5% to 4.0%.

How does the remaining useful life affect the income value?

A longer remaining useful life increases the multiplier and thus the building’s income value. A building with an 80-year remaining useful life is therefore-all other key data being equal-significantly more valuable than one with a 20-year remaining useful life. Renovations can extend the economic remaining useful life and increase the income value.

Does the income value differ from the tax value of real estate?

Yes. The tax value (market value under the Valuation Act) is calculated for inheritance and gift tax purposes using a simplified method that does not necessarily correspond to the market value. If the tax value exceeds the actual income value or market value, an expert appraisal may be used to demonstrate the lower value and thereby save on taxes (Section 198 of the Valuation Act).

A regular review of the income value is particularly recommended for owners of investment properties in the Nuremberg metropolitan region, as property interest rates, market rents, and remaining useful lives change, requiring the calculation basis for price negotiations and financing decisions to be continuously reassessed.

How does the income value react to vacancy?

Vacancy directly reduces the annual gross income and thus lowers the income value. Appraisers account for vacancy in two ways: Short-term, structurally explainable vacancy (e.g., during a renovation) is often reflected by a temporary loss of rent adjustment. Structural or permanent vacancy-such as in locations with declining demand-on the other hand, leads to a permanent downward adjustment of the gross yield and thus to a significantly lower income value. When valuing multi-family homes in Nuremberg with individual vacant units, we recommend estimating the sustainable rental income based on the market rent for the units in question-not the current zero value-to provide a realistic picture of the achievable return.

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