A newly built house is let out for rent of ? 1,000 per month inclusive of all taxes. If outgoings are at 20% of the gross rent and expected rate of return is 10% what is the capital value by the rental method of valuation?
Capitalized value:— It is defined as the amount of money whose annual interest at the highest prevailing rate will be equal to the net income received from the property. To calculate the capitalized value, it is necessary to know the highest rate of interest prevailing on such properties and the net income from the property.
Gross Rent = ? 1,000/month = ? 12,000/year
Outgoing = 20% of gross rent = \(\frac{{20}}{{100}} \times 12000 = 2400\)
Net Rent = 12000 − 2400 = ? 9600
Capital value = Net Rent/Rate of interest (decimal form) = 9600/0.1 = ? 96,000/