Journal of Property Tax Assessment & Administration


In appraising the value of a revenue-generating asset, it is often good appraisal practice to use the income approach when the data are available. However, there are different techniques of income capitalization that can be considered, including but not limited to the use of a gross income multiplier (GIM), a direct capitalization analysis, or a discounted cash flow (DCF) analysis. There are a number of regular users and uses of appraisals that require a property or other asset to be analyzed with one or more income techniques assuming the perspective of a certain level of income. Common examples are of appraisals of real property (usually requiring after-property-tax but before-income-tax analyses), appraisal of real property for ad valorem property tax assessment or appeal purposes (usually requiring before-property-tax net operating income [NOI] appraisals), and power plant and other special-purpose industrial property appraisals and many business appraisals (often requiring after-income-tax appraisals). This paper discusses the importance of ensuring the income multiplier, capitalization rate, or discount rate being used matches the cash flow or NOI it is being applied to. It provides the mathematical framework to allow appraisers to properly transition from one type of analysis to another — cash flow or NOI before or after real estate taxes and/or before or after income taxes.

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Capitalization; Income approach to value