Hi,
In the Wiley study text, there is a section that deals with the two approaches used to incorporate the anticipated change in rent into the valuation process when valuing properties in the middle of their lease terms.
One such paragraph, dealing with the Term & Reversion Approach reads:
"Convention dictates that the discount rate used to compute the present value of the future reversionary value must be the same as the capitalization rate used to compute the reversionary value (or Expected Rental Value, ERV).
What does this mean?
Why should the discount rate used to bring it back to Present Value and the Cap rate used to compute the reversionary value be the same?
What is behind this convention?
Regards,