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The basis is the gross income from rental revenue, from which operating costs such as management, maintenance, and the risk of rent default are deducted to determine the net income of the property.
The building's net income, reduced by the appropriate return on land value, is then capitalized using a multiplier derived from the standard land value interest rate (Liegenschaftszinssatz) and the remaining useful life.
Adding the separately determined land value results in the preliminary income value, which is finally adjusted for special, property-specific characteristics of the land.
The so-called land interest rate (Liegenschaftszinssatz) reflects the average, market-standard rate of return on the capital tied up in the land and is regularly published by the expert committees (Gutachterausschuss) for different property types.
Since even small changes in the interest rate can noticeably affect the result, its appropriate selection is one of the most demanding steps in the income approach.