How do you value a freehold property with a current rent of ₦500,000 p.a., an ERV of ₦750,000 p.a., a rent review every 4 years, a term yield of 7%, and a reversionary yield of 9%?

Question

Asked on May 29, 2026Business/Management

This business/management problem is solved step by step below, with detailed explanations to help you understand the method and arrive at the correct answer.

Accepted Answer · 2026-05-29T16:00:18.731Z

Hey igwegift041, good to see you again. To value the freehold property, we need to calculate the present value of the income stream in two parts: the value of the current rent for the term until review, and the value of the estimated rental value (ERV) from the review date onwards. Current rent = ₦500,000 p.a. Estimated Rental Value (ERV) = ₦750,000 p.a. Rent review period = 4 years Term yield = 7% (0.07) Reversionary yield = 9% (0.09) Step 1: Calculate the Present Value of the Term. This is the present value of an annuity of ₦500,000 for 4 years at a 7% yield. The formula for Years' Purchase (YP) for a term certain is 1 - (1+i)^-ni. YP for 4 years at 7% = 1 - (1+0.07)^-40.07 YP for 4 years at 7% = 1 - (1.07)^-40.07 YP for 4 years at 7% = (1 - 0.762895166)/(0.07) YP for 4 years at 7% = (0.237104834)/(0.07) ≈ 3.3872119 Value of Term = ₦500,000 × 3.3872119 = ₦1,693,605.95 Step 2: Calculate the Capital Value of the Reversion at the end of the term. This is the value of the ERV in perpetuity, effective from year 4, using the reversionary yield. Capital Value at year 4 = ERVReversionary Yield Capital Value at year 4 = ₦750,0000.09 = ₦8,333,333.33 Step 3: Calculate the Present Value of the Reversion. This involves discounting the capital value from Step 2 back to the present day using the reversionary yield. The present value factor for a single sum is (1+i)^-n. PV factor for 4 years at 9% = (1+0.09)^-4 PV factor for 4 years at 9% = (1.09)^-4 ≈ 0.7084252 Value of Reversion = ₦8,333,333.33 × 0.7084252 Value of Reversion = ₦5,903,543.33 Step 4: Calculate the Total Property Value. The total value is the sum of the Value of the Term and the Value of the Reversion. Total Property Value = Value of Term + Value of Reversion Total Property Value = ₦1,693,605.95 + ₦5,903,543.33 Total Property Value = ₦7,597,149.28 The total value of the freehold property is approximately: ₦7,597,149.28 Send me the next one 📸

Accepted Answer · 2026-05-29T16:00:18.731Z

Hey igwegift041, good to see you again. To value the freehold property, we need to calculate the present value of the income stream in two parts: the value of the current rent for the term until review, and the value of the estimated rental value (ERV) from the review date onwards. Current rent = ₦500,000 p.a. Estimated Rental Value (ERV) = ₦750,000 p.a. Rent review period = 4 years Term yield = 7% (0.07) Reversionary yield = 9% (0.09) Step 1: Calculate the Present Value of the Term. This is the present value of an annuity of ₦500,000 for 4 years at a 7% yield. The formula for Years' Purchase (YP) for a term certain is 1 - (1+i)^-ni. YP for 4 years at 7% = 1 - (1+0.07)^-40.07 YP for 4 years at 7% = 1 - (1.07)^-40.07 YP for 4 years at 7% = (1 - 0.762895166)/(0.07) YP for 4 years at 7% = (0.237104834)/(0.07) ≈ 3.3872119 Value of Term = ₦500,000 × 3.3872119 = ₦1,693,605.95 Step 2: Calculate the Capital Value of the Reversion at the end of the term. This is the value of the ERV in perpetuity, effective from year 4, using the reversionary yield. Capital Value at year 4 = ERVReversionary Yield Capital Value at year 4 = ₦750,0000.09 = ₦8,333,333.33 Step 3: Calculate the Present Value of the Reversion. This involves discounting the capital value from Step 2 back to the present day using the reversionary yield. The present value factor for a single sum is (1+i)^-n. PV factor for 4 years at 9% = (1+0.09)^-4 PV factor for 4 years at 9% = (1.09)^-4 ≈ 0.7084252 Value of Reversion = ₦8,333,333.33 × 0.7084252 Value of Reversion = ₦5,903,543.33 Step 4: Calculate the Total Property Value. The total value is the sum of the Value of the Term and the Value of the Reversion. Total Property Value = Value of Term + Value of Reversion Total Property Value = ₦1,693,605.95 + ₦5,903,543.33 Total Property Value = ₦7,597,149.28 The total value of the freehold property is approximately: ₦7,597,149.28 Send me the next one 📸

How do you value a freehold property with a current rent of ₦500,000 p.a., an ERV of ₦750,000 p.a., a rent review every 4 years, a term yield of 7%, and a reversionary yield of 9%?

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How do you value a freehold property with a current rent of ₦500,000 p.a., an ERV of ₦750,000 p.a., a rent review every 4 years, a term yield of 7%, and a reversionary yield of 9%?

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