1. What is the Leasehold Property Value Formula?

The leasehold property value formula calculates the present value of a leasehold property based on ground rent, yield, and remaining lease term. It accounts for both the perpetuity value and the finite term of the lease.

2. How Does the Calculator Work?

The calculator uses the leasehold property value formula:

Where:

• \( PV \) — Present value of the leasehold property ($)
• \( GR \) — Ground rent ($/year)
• \( Y \) — Yield (decimal)
• \( L \) — Years left on lease (years)

Explanation: The first term calculates the perpetuity value, while the second term adjusts for the finite lease term using a present value annuity factor.

3. Importance of Leasehold Valuation

Details: Accurate leasehold valuation is crucial for property transactions, mortgage applications, lease extensions, and investment analysis. It helps determine the fair market value of leasehold interests.

4. Using the Calculator

Tips: Enter ground rent in dollars per year, yield as a decimal (e.g., 0.05 for 5%), and remaining lease term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is ground rent?
A: Ground rent is the annual payment made by the leaseholder to the freeholder for the right to occupy the land.

Q2: How is yield determined?
A: Yield is typically based on market rates for similar properties and reflects the required return on investment.

Q3: Does this formula work for all lease lengths?
A: The formula works best for medium to long leases. For very short leases, different valuation methods may be more appropriate.

Q4: What happens when the lease term approaches zero?
A: As the lease term decreases, the present value approaches zero since the right to occupy the property expires.

Q5: How does lease extension affect the value?
A: Extending the lease term increases the present value, as it extends the period over which ground rent is paid.