A finished FIN-432 Topic 6 ground lease interest valuation example, identifying a leasehold with twenty-eight years left, valuing it over its term and pricing the error of capitalizing it forever. Searches like "fin 432 topic 6 assignment example", "fin432 topic 6 sample" and "fin-432 topic 6 example" land here.
What a finished FIN-432 Topic 6 ground lease interest valuation looks like
The finished valuation begins with the title documents, not the rent roll. They show a building on ground leased from a separate owner at an illustrative fixed 60,000 a year for the remaining twenty-eight years, after which the land and building pass to the landowner. The building produces 300,000 of net operating income before ground rent, so the leasehold earns 240,000. Discounted as a level stream at the case's 7 percent over twenty-eight years, the leasehold is worth about 2,913,000. The listing capitalized the same 240,000 at 7 percent as if it lasted forever, about 3,429,000, overstating the interest by roughly 516,000, the value of years the buyer will never hold. A title exception for a utility easement across the parking lot is read next, and a separate 25 percent tenancy-in-common offer is described as a different asset again.
How a FIN-432 Topic 6 example is structured
Everything in the valuation turns on which rights transfer at closing. The composite property and the listing's description of it come first, its figures all invented. The title section summarizes what the documents show: the ground lease, its remaining term, its rent and what happens at expiry. A short passage distinguishes the three interests on this land, the fee simple a single owner would hold, the leased fee the landowner holds and the leasehold offered for sale. The income section subtracts ground rent from the building's operating income. Next the leasehold income is discounted across twenty-eight years and set beside the perpetual figure the listing used. An easement paragraph reads the utility exception and its effect on parking. A fractional interest paragraph explains why a minority share with restricted control is valued below its proportion. The close states the price the leasehold supports.
Title read before the rent roll
The documents reveal the ground lease, its twenty-eight remaining years and its fixed rent, facts the listing's income summary never mentioned.
Three interests on one parcel
Fee simple, leased fee and leasehold are defined against this property, so it is clear that the buyer is acquiring only the third of them.
A finite stream valued as finite
Discounting 240,000 a year across twenty-eight years at 7 percent gives about 2,913,000, since the income ends when the lease does.
The perpetual error priced
Capitalizing the same income as if it never ended gives about 3,429,000, an overstatement near 516,000 for years that belong to the landowner.
An easement read for its effect
A recorded utility easement across the parking lot limits where spaces and structures can go, and the example notes what that means for tenant parking.
A minority share valued below proportion
A 25 percent tenancy-in-common share without control over leasing or sale is worth less than a quarter of the whole, for reasons the paragraph states.
Where marks go in FIN-432 Topic 6
The first deduction goes to valuations that treat the land as part of the purchase, since the listing's figure prices rights the buyer will not receive. Papers that notice the ground lease and then capitalize leasehold income in perpetuity have identified the interest without letting it change the arithmetic, and the overstatement here is about 516,000. Ignoring what happens at lease expiry, when the building passes to the landowner, removes the reason the income stream is finite. Title exceptions left unread can hide an easement that limits the property's use. Treating a fractional share as a proportional slice of the whole ignores the loss of control that comes with it. A valuation that never states which interest it values cannot be compared with any sale, since sales of fee simple and leasehold interests measure different things.
Get a FIN-432 Topic 6 example written to your instructions
Send the FIN-432 Topic 6 instructions and the rubric shared in your classroom, with the title summary, lease terms or case your section provides. We write a custom example to them, with the legal interest identified from the documents, finite income valued as finite, easements read for their effect and fractional shares discounted with reasons, in 24 to 48 hours. The first one is free.
FIN-432 Topic 6 questions, answered
What is the difference between a leasehold and a fee simple?
A fee simple is the most complete form of ownership: the owner holds the land and buildings with no end date, subject to law and recorded restrictions. A leasehold is the right to use and occupy property for the term of a lease, after which possession returns to the holder of the fee. The two can sit on the same parcel, held by different people, and they are valued differently because one ends.
Why is a 25 percent share worth less than a quarter of the building?
Because a minority owner in a tenancy in common often cannot control leasing, financing or the timing of a sale, and selling a fractional share is harder than selling a whole property. Buyers pay less for an interest they cannot direct and may struggle to exit. Appraisers commonly apply discounts for lack of control and marketability, though their size depends on the agreement and the evidence.
Can the example tell me what my ground lease is worth?
No. The property, lease terms and discount rate are illustrative, and real ground leases differ in rent resets, renewal options, reversion terms and financing restrictions that change their value substantially. A real valuation depends on the actual documents and on professional appraisal and legal review. It demonstrates how FIN-432 wants the legal interest identified and priced before any value is stated.