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ProCash, an Economic Model for Income Properties

Residual Value

Residual value is estimated (in the easiest method) as capitalized "net available for debt service". Financing obligations are deducted and capital gains tax obligations are calculated, with consideration of accelerated depreciation if it has been used and if tax law requires, and resulting residual values are distributed according to ownership or other specific inputs.

The customary way of determining the residual value is by capitalizing "net available for debt service." The capitalization rate is input as AVI[113]. Since some projects do not produce economic income, e.g. subsidized housing, the system will not allow the residual value to be less than original cost in this easiest and customary method.

If AVI[113] is negative one (-1), then ending value will be taken as mortgage balances plus $1.

If AVI[113] is negative two (-2), then ending value will be taken as mortgage balances plus the funds necessary to repay equity contributions.

MV[27] has no effect if any of these three methods are used.

If AVI[113] is greater than 1 and MV[27] is zero, then AVI[113] will be taken as the ending value. The ending value can be less than original cost by this method.

If AVI[113] is zero and MV[27] is zero, then the ending value will be original cost.

MV[27] is used to indicate an annual rate of appreciation on the original cost (if AVI[113] is zero) or market value (input as AVI[113]) to determine the ending sale value. The appreciation can be lagged by a number of periods input as MV[28] for the sake of conservatism.

If more than one method of determining ending value is desired, each can be input as an element of the vector RESVLUS.

A sales commission can be imposed on the ending sale value by MV[47].

inputdescriptionhelp#importancefrequency
AVI[113]Capitalization Rate for Ending Value(0=Orig.Cost) 531  3
AVI[171]Selling Comm. & Expense Rate at Ending Sale 531  3
AVI[154]Appreciation Rate Current Market Value if AVI[113]>1 531  1
AVI[155]Periods to Lag MV[27] App.Rate to be Conservative 531  1
RESVLUS Input:Method for calculating residual values 531  

viewtypecase studyviewfile sizecomplexityhelp#comment
Inputs601 Liberty St., Hotel Joint Venture(residual values) 2975 17 531 
BHP II Limited Partnership : LIHTC(residual values) 2927 20 531 

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