A residential building fetches a monthly gross rent of Rs. 15,000. The annual outgoings in the form of taxes and other contingencies is Rs. 18,000. The cost of land comes to Rs. 8,00,000. Estimate the total value of property (in Rs.) on a yearly basis. Assume the rate of interest as 8% per annum.

Concept:

The Capitalized value of a property is given as

Capitalized value = Net Income x Year Purchase

Where,

Net Income = Gross Income - all outgoings or expenses

Year Purchase = 100/interest rate in %

The total value of the property on yearly basis is the sum of land cost and property's capital value

Value of Property = Capitalized Value + Land Cost

Calculation:

Monthly rent received = 15000
Annual Rent received = 12 x 15,000 = 180000
Annual Outgoings =Rs. 18000
rate of interest as 8% per annum
Net income = Gross Income - all outgoings or expenses
Net income = 180000 - 18000 = 162000
Year Purchase is calculated as: Y P = 100/8 = 12.5

Capitalized value = Net Income x Year Purchase

Capitalized value = 162000 x 12.5 = 2025000

Value of Property = Capital Value + Land Cost

Value of Property = 2025000 + 800000= Rs. 2825000