This approach is commonly adopted to assess buildings likely to be rented.

A rate of return is applied to existing or potential rental income.

This method can be used in different ways according to the rate of return to be applied, (actual rent or market rent, gross rent or net rent) all with different rates of return.

In France, the basis for calculation generally used for residential property is the annual gross rent or annual net rent excluding property taxes and service charges. In commercial property, the calculation is based on annual net rent or “triple-net” where taxes, service charges, insurance etc. are paid by the tenant.

The estimated rate of return (estimated by comparing to the market), depends on use of the property, its location and the type of rental agreement (commercial, free sector, social sector,...).

In some cases (e.g. for uncapping a commercial rent) variations of this method may be used, using capitalisation of income with allowance for loss of rent.

When it is planned to finance the cost of conformity works, major repairs or improvements, these are deducted from the capitalised value (the value “deed in hand”).