What does the band of investment method analyze?

The band of investment method is a valuation approach that focuses on determining the value of a property by analyzing the various financing sources that contribute to its overall value. This method involves assessing the percentages of property value that are represented by different sources of financing, including debt (loans) and equity (owner's investment).

By calculating the weighted average cost of capital (WACC), this method helps to estimate the overall capitalization rate that investors would expect from the property based on its financing structure. Essentially, it provides insight into how much of the property's value is leveraged through borrowing versus how much is financed through owner equity. This is crucial for appraisers and investors because it reflects the risk and potential return associated with different investment contributions.

The focus on financing sources allows for a more nuanced understanding of property valuation, particularly in situations where properties are financed through a combination of loans and investor equity. This analytical lens aids in arriving at a more accurate and informed estimate of the property's worth.