The objective of this paper has been to clarify the mathematical basis for the Ellwood method of income capitalization. A derivation of the Ellwood equations using conventional algebra and the definitions and symbols of the Ellwood test, is presented. The Ellwood expression for a capitalization rate for an equity-only investment is shown to be obtained directly from the Inwood premise. The mortgage-equity formula is then derived by adding together two investment positions and simplifying the expression by making one investment a mortgage of the level-payment, self-amortizing type. The potential for future development is demonstrated by working out general equations for an investment with an equity kicker. There has been continuing resistance to the Ellwood method because of its supposed complexity. It is ironic to note that the same appraisers who resist Ellwood might feel quite at home with the Inwood method, which, as has been shown, is the equivalent. It is hoped that a broader understanding of the origin of the equations will spur greater use and adaptation of the Ellwood method to new appraisal problems.

  • Corporate Authors:

    American Institute of Real Estate Appraisers

    155 East Superior Street
    Chicago, IL  United States  60611
  • Authors:
    • Bradley, D M
  • Publication Date: 1976-1

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Filing Info

  • Accession Number: 00131554
  • Record Type: Publication
  • Files: TRIS
  • Created Date: May 14 1976 12:00AM