MORTGAGE‐EQUITY CASH FLOW ANALYSIS

Abstract

This paper synthesises the mortgage‐equity capitalisation technique, often used in property investment analysis and valuation practice in the United States of America, and the equated yield technique used in the United Kingdom. The mortgate‐equity technique considers two components of value, namely, debt and equity. It is usually applied to the nett income receivable in the first year, (conventional income capitalisation). Equated yield is a form of cash flow analysis which allows for the assessment of rental income projections. The combination of the two techniques, where debt capital is treated as an actual series of cash flows, leads to a discounted cash flow rate of return being available for equity capital. This measure should be of interest to property companies and occupying investors. The approach is demonstrated using a simple example, and some sample tables of equated yield on equity are appended.

Citation

ROBINSON, J. (1986), "MORTGAGE‐EQUITY CASH FLOW ANALYSIS", Journal of Valuation, Vol. 4 No. 3, pp. 275-290. https://doi.org/10.1108/eb007996