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🧮 IncomeApproach Documentation

🧮 QUICK DOCUMENTATION​

  • File Path: /Domain/Entities/IncomeApproach.cs
  • Database Table: IncomeApproaches
  • Primary Purpose: Provides data and algorithms for income-based asset valuation
  • 🔑 Key Fields:
    • Id (int) - Primary key
    • AssetId (int) - Links to the parent asset
    • LandArea (decimal) - Area of the land
    • LandRate (decimal) - Rate per unit area
    • ImprovementsPct (decimal) - Percentage of improvements to value
    • IndexationPct (decimal) - Adjustment for time-based changes
    • IncomeApproachItems (collection) - Individual income streams
  • 🔗 Related Models:
    • Asset (parent) - The asset being valued
    • IncomeApproachItem (one-to-many) - Income streams

📝 DETAILED DOCUMENTATION​

🧮 Overview​

The IncomeApproach entity contains data and methods needed to perform income-based valuations of assets. It supports the capitalization of income streams from multiple sources, with adjustments for land values, improvement percentages, and indexation factors. Income-based valuation is typically used for assets that generate income, such as commercial properties or revenue-producing infrastructure.

🏗️ Model Details​

  • Namespace: AVP.Domain.Entities
  • Inheritance: IClientEntity

🧮 Income Capitalization Methodology​

The IncomeApproach implements capitalization of income streams:

  1. Direct Capitalization Method

    • Converts annual net income to value using capitalization rate
    • Formula: Value = Net Operating Income ÷ Capitalization Rate
    • Multiple income streams can be calculated separately and summed

  2. Income Stream Components

    • Gross Income: Total income potential
    • Vacancy and Collection Loss: Reduction for unoccupied periods
    • Operating Expenses: Costs to maintain and operate the asset
    • Net Operating Income: Gross Income minus Vacancies and Expenses

  3. Land and Improvements Separation

    • Land value calculated separately using market rates
    • Improvements value derived from total value minus land
    • Allows for separate analysis of land and improvements returns

🧮 Calculation Methods​

The entity provides several key calculation methods:

  1. LandValue()

    • Calculates total land value based on area and rate
    • Formula: LandValue = LandArea × LandRate

  2. PropertyValue()

    • Sums the valuations from all income streams
    • Each stream's value is calculated based on its own parameters

  3. ImprovementsValue()

    • Calculates the value of improvements separate from land
    • Formula: ImprovementsValue = PropertyValue - LandValue

  4. MarketValue()

    • Provides the final market value with all adjustments applied
    • Formula: MarketValue = PropertyValue × IndexationPct

📝 Business Rules Applied​

  • IncomeApproach is used when an asset's ValuationType is set to Income
  • Multiple income streams can be analyzed through IncomeApproachItems
  • Each IncomeApproachItem represents a separate income stream with parameters:
    • Annual income and expense amounts
    • Vacancy rates and collection loss percentages
    • Capitalization rates specific to income type
    • Risk adjustments and market factors
  • Domain events are triggered when values change, ensuring asset valuations are recalculated
  • The approach handles various edge cases including preventing divide-by-zero errors

📊 Application in Valuation​

ℹ️ Note: Income approach is typically used for:

  1. Income-Producing Assets

    • Commercial rental properties
    • Industrial facilities
    • Infrastructure with user fees
    • Agricultural land with productive capacity

  2. Fair Value Measurement

    • Supports Level 2 and Level 3 fair value hierarchy
    • Used when market approach data is limited
    • Creates defensible valuation basis based on income potential

🧮 Capitalization Rate Significance​

The capitalization rate is a critical factor in income valuation:

  • Represents the expected rate of return on investment
  • Typically derived from market analysis of comparable properties
  • Incorporates risk assessment, growth expectations, and market conditions
  • Small changes can significantly impact the resulting value

📝 Business Context​

The income approach directly supports these business needs:

  1. Investment Analysis

    • Evaluates asset performance based on income generation
    • Supports return on investment calculations
    • Enables comparison of different investment opportunities

  2. Property Management

    • Identifies income optimization opportunities
    • Supports rent-setting decisions
    • Evaluates expense management effectiveness

  3. Financial Reporting

    • Complies with income approach requirements in accounting standards
    • Provides transparent valuation methodology
    • Creates audit trail of income-based calculations