- Derive the adopted income from contracts, rent demands and payments.
- Capitalisation must consistently reflect the term, costs, risks and land assumption.
- A sensitivity analysis shows the consequences of changed assumptions but does not confirm that they are permissible.
When does an income-based assessment provide a sound basis?
An income-based assessment is useful when achievable receipts substantially determine the economic behaviour of relevant buyers and their basis is sufficiently clear. This is often an important question for let properties, but does not automatically assign a method to every property type. Comparable data or particular development circumstances may also require different or additional assessments.
§ 5 LBG links expected net income, an appropriate interest rate and expected useful life. Its direct scope follows from § 1 LBG. The calculation below explains a simplified model variant; it is not a statutory universal formula for all properties.
Foundations: RIS – Rechtsinformationssystem des Bundes [1] · RIS – Rechtsinformationssystem des Bundes [3]
From existing contracts to adopted gross income
For each unit, bring together the contractual basis, current basic rent demanded, actual payment and outstanding amount. Keep recoveries of operating costs and VAT clearly separate from the rent figure chosen for the calculation. Deposits are not recurring rent. A rent roll should also show vacancy, fixed terms, amendments and identifiable special agreements.
Differences between actual and sustainably achievable income must be justified. Vacancy does not, by itself, permit arbitrary assumed rents for new lettings. Contractual and statutory requirements, achievable condition and necessary investment must be addressed before a potential-income calculation. A higher scenario value does not resolve an unanswered legal question.
Foundations: RIS – Rechtsinformationssystem des Bundes [1]
Which expenses reduce income?
The reconciliation from gross income records expenditure and the allowance for lost income appropriate to the model. Separate recurring owner costs from special investments and allocate reimbursements accordingly. Choose a presentation in which income and expenditure match; gross receipts combined with only selected net expenses produce a distorted net income.
§ 5 LBG also requires attention to depreciation and possible liquidation proceeds and costs. Depreciation is only deducted separately to the extent that it has not already been reflected in capitalisation. If recovery of the building capital is incorporated through a finite annuity calculation, the same effect must not be deducted again.
| Item | Euros per year | Status |
|---|---|---|
| Rental income excluding pass-through items | 96,000 | Fictionally assumed to be sustainable |
| Recurring unreimbursed owner costs | −19,000 | Fictional; without additional depreciation of the same kind |
| Allowance for lost income | −5,000 | Fictional, separate risk item |
| Remaining annual amount | 72,000 | Before allocation to land and building |
Foundations: RIS – Rechtsinformationssystem des Bundes [1]
Bringing land, useful life and interest rate together
In the simplified variant chosen here, a return on the land is first separated from the annual amount. The building component is capitalised as a constant annual payment over a finite remaining useful life; the land value is then added. This presentation requires a consistent land assumption and must not be mixed with a fully capitalised value for the entire property.
For annual payments in arrears, the annuity present value factor is V = (1 − (1 + i) to the power of −n) / i. Here, i is the interest rate expressed as a decimal and n is the term in years. With land value B and annual amount R, this model variant gives B + (R − B × i) × V.
The adopted interest rate must suit the definition of payments, the property and the market. It is not automatically a borrowing rate or the gross yield in a listing. Remaining useful life is a justified expectation of economic usability, not simply the subtraction of the construction year from a standard lifespan.
Foundations: RIS – Rechtsinformationssystem des Bundes [1]
What changes when an assumption changes?
In the example explained below, 4.0 per cent and 40 years give approximately 1,508,395 euros. If only the interest rate changes to 4.5 per cent, the return on land and annuity factor are recalculated: 18,000 euros return on land, 54,000 euros allocated to the building and a factor of 18.401584 produce approximately 1,393,686 euros. Both interest rates are invented.
The model assumes constant annual payments in arrears, no separate investments and no residual building value after 40 years. For simplicity, additional liquidation proceeds and costs are set to zero here; the land assumption remains unchanged. In a real case, these premises must be checked. Stepped rents or major later works may require a calculation that distinguishes different periods.
The method's result must finally be placed in market context. Unresolved contractual questions, an unsubstantiated land value or missing information about building condition become visible through sensitivity analysis, but are not resolved by it.
Foundations: RIS – Rechtsinformationssystem des Bundes [2]
Entirely fictional income valuation model with a finite term
All figures are teaching assumptions unrelated to any real Vienna property. The hypothetical land value is 400,000 euros; the assumed interest rate is 4.0 per cent and remaining useful life is 40 years.
- Annual amount after recurring owner costs and the allowance for lost income: 96,000 − 19,000 − 5,000 = 72,000 euros.
- Return on land: 400,000 × 0.04 = 16,000 euros per year. The amount allocated to the building in the model is 72,000 − 16,000 = 56,000 euros per year.
- Annuity present value factor: (1 − 1.04 to the power of −40) / 0.04 = 19.7927738834. Building present value: 56,000 × 19.7927738834 = approximately 1,108,395 euros.
- Adding the assumed land value: 1,108,395 + 400,000 = approximately 1,508,395 euros. Rounding is applied only for presentation.
The calculation shows the relationship between income, land and the building's finite use. It does not capitalise the entire rent in perpetuity or replace checks of the inputs or market conditions.
Your next assessment steps
Record what you have already clarified and which documents you still need.
Link the rent roll to contracts and payments
Explains amounts due and received, vacancy and unresolved income assumptions for each unit.
Where can I obtain the supporting information?
Reconcile contract records, property management information and payment schedules.
Separate owner costs and investments
Prevents omitted expenditure and duplicate deductions.
Where can I obtain the supporting information?
Bring together accounts, the works plan and quotations.
Have the land value, term and interest rate justified
Makes the capitalised payment stream traceable.
Where can I obtain the supporting information?
Request the valuation calculation with sources and condition assumptions.
Calculate the existing position and conditional potential separately
Prevents uncertain future receipts from being treated as secure income.
Where can I obtain the supporting information?
Check contractual and building-law prerequisites before calculating the scenario.
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Change an assumption.
Understand the difference.
What is a payment that stays the same over several years worth today? Change the example figures and compare the present value of this payment stream.
€96,000 annual surplus over 20 years, discounted at 4 %.
| Interest rate | Present value | Difference from the example |
|---|---|---|
| 3 % | €1,428,238 | €123,566 |
| 4 % | €1,304,671 | Initial assumption |
| 5 % | €1,196,372 | -€108,299 |
Calculation and model limitations
Annual surplus = income − expenses. Present value = surplus × [1 − (1 + interest rate) to the power of −years] ÷ interest rate. The interest rate is entered as a decimal. Each payment falls at the end of the year.
The example contains no residual or sale value at the end of the term, separate land and building values, financing, taxes, rent changes or one-off investments. The chosen interest rate is not a recommendation for the Vienna market. The result is not a property value or a complete income approach valuation.
Understand the full methodSources and date
The following sources support this main article. For your specific property, current documents and the applicable conditions matter.
- RIS – Rechtsinformationssystem des BundesProperty Valuation Act: § 5, income approach
- RIS – Rechtsinformationssystem des BundesProperty Valuation Act: § 7, choice of valuation method
- RIS – Rechtsinformationssystem des BundesProperty Valuation Act: § 1, scope
Editorial date: 11/09/2026. Examples explain relationships and do not contain an individually prepared property valuation. Editorial work and sources.
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