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CABARRUS COUNTY 2012 APPRAISAL MANUAL BUILDING RESIDUAL TECHNIQUE - LEVEL ANNUITY Again, when contract rent is applicable (long term lease with prime tenants) the level annuity technique should be used as follows: Net Operating Income Less annual income allocated to land $15,000 - $3,000 Equals income allocated to improvements $12,000 Present worth of Improvements equals Annual Income allocated to building capitalized at the capitalization rate: (i.e. $12,000/.100857) _ Plus current land value $118,980 $ 30,000 Lcvcl Annuity Building Residual Technique PROPERTY RESIDUAL LEVEL ANNUITY $148,980 When total property income is difficult to allocate to either land or building, as in the case where building improvements are old, and where there is doubt about the land value because of location and specialized character, the property appraiser may want to use the property residual technique. Net Annual Income is capitalized over the remaining economic life of the property. To this must be added the projected value of the land at the end of the property's expected economic life discounted at the appropriate rate. PASCO allows the appraiser to compensate for expected growth trends in land values by entering an annual land growth rate. However, for properties with relatively long remaining economic lives, the difference is minimal. Given: NOI, $15,000 Discount Rate, 9% REL, 25 years Estimated Reversionary Value of Land, $2,000 Net Operating Income $15,000 Present Worth of Income Stream: NOI / (Discount Rate & Capital Recovery Rate) NOI / (.09 +.0118) $15,000 /.10181 = $147,333 Plus Present Worth of Reversion $20,000 x .115968 $2,319 Present Worth of Property $149,652 Estimated value of Property via Property Residual Technique $149,652 Cabarrus County — 2012 Revaluation INCOME PROPERTY VALUATION 8- 10 05/24/01 Attachment number 11 G -3 Page 413