|Introduction: The UK Valuation family has functions for calculating exit capitalisation values and equivalent yields. This family is pretty much orientated to the UK approach to real estate mathematics. There is another family, the UK Valuation DCF family, that uses own derivation of property math which you should also consider. We are interested in adding functions for the US - please get in touch with us if you have an idea. Our understanding is that the US uses DCF fairly exclusively.|
The functions in this family fall into 2 main groups:
- There are functions that calculate capitalised values and equivalent yields, where which one you use depends on the form of your input data (they all use the same underlying math). If you have a passing rent and a market rent, with possibly a rent free period, then EqYield and CapValue will do this simple job rather well, either for Nominal or True AER Yields. If you have a number of stepped rents for which you want to use the conventional property math, there is the generalised form EqYieldG and CapValueG. Finally, if you want to use dates rather than deferrals in months, you can use the date versions EqYieldGD and CapValueGD. we advise that you fully understand the math before using a large number of rental steps since the math does make some approximations that get larger with time deferred.
- There are utility functions that use the same underlying math to convert True to Nominal Yields and vice-versa (NomToTrue and TrueToNom), for any specification of rental frequency. And there is the well-know standard YPPDef, the "deferred Years Purchase of a Perpetuity" formula.
This family has a strong technical element to it and we have written a paper, available online, that details our approach:
Just a Note: Be Consistent With Your Yields and Rental Frequency
The functions work fine with the all the permutations of Nominal and True Yields and different payments per year, because the Math is designed to cope with all eventualities. However, please try to be consistent - a practise we have seen often, for example, is to take a value obtained by the assumption of rents annually in arrear (CapValue, CapValueG) and then use that value to calculate an equivalent yield (EqYield,EqYieldG) assuming payments quarterly. We don"t think that calculating a value based on incorrect assumptions can be right in any circumstances, and it would be much better to, say use a Nominal Yield with the appropriate rental frequency to get the right value, and then proceed to whatever you want to do from there. We therefore find it hard to endorse this approach (but we"re are willing to listen if you think We"ve got it wrong!).
|Functions in the UK Valuation family (16)|
- CapValue Cap Value (UK Real Estate Conventional Math)
- EqYield Equivalent Yield (UK Real Estate Conventional Math)
- CapValueG Cap Value (UK Real Estate Conventional Math), extended version
- EqYieldG Equivalent Yield (UK Real Estate Conventional Math)
- CapValueGD Cap Value (UK Real Estate Conventional Math), extended version, extended version
- EqYieldGD Equivalent Yield (UK Real Estate Conventional Math), extended version, extended version
- NomToTrue Convert a Nominal (Simple) Yield to a True (APR) Yield
- TrueToNom Convert a True (APR) Yield to a Nominal (Simple) Yield
- YPP Years Purchase of a Perpetuity
- YPPDef Years Purchase of a Perpetuity, Deferred
- YPA Years Purchase of Annuity
- YPADef Years Purchase of Annuity, Deferred
- CapValueGrowGD CapValueGD with reversion to market
- CapValueFcstGD CapValueGD with reversion to market
- EqYieldGrowGD Inverse of CapValueGrowGD
- EqYieldFcstGD Inverse of CapValueFcstGD