Abstract
Mortgage-equity models are the most widely used models for valuation of income properties. Equity-yield models are used twice as often as basic band-of-investment models. The increased popularity of mortgage-equity models follows the continuing evolution in real estate investment from a roughly pre-1960 period, in which investors were concerned primarily with operating income, and loan/value ratios were relatively low, to the current period in which sale proceeds contribute an increasing percentage of overall return, and loan-value ratios are at high levels. The changing environment has created the need to recognize the increasing impact of sale proceeds on value and the need to recognize the increasing impact of leverage on value. The appraiser's solution to these related problems is reflected in the adoption of mortgage-equity techniques which recognize, and can explicitly distinguish between various combinations of benefit flows.