YEARS PURCHASE Meaning and
Definition
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Years purchase is a financial term that refers to a method used to determine the value of an investment or an income stream. It is a ratio that compares the price or value of an asset to its annual income or cash flow. Specifically, years purchase is calculated by dividing the price or value of the asset by the annual income it generates.
This ratio is commonly used in the valuation of various investments, particularly in the real estate industry. In real estate, years purchase is often used to determine the value of rental properties. For example, if a property generates an annual rental income of $50,000 and is valued at $500,000, the years purchase would be calculated as 10 ($500,000 / $50,000). This means that it would take 10 years for the buyer to recoup their investment through the rental income alone.
Years purchase is an important concept in investment analysis as it helps assess the profitability and attractiveness of an investment. A lower years purchase ratio indicates a higher return on investment and greater potential for profit. Conversely, a higher years purchase ratio suggests a longer time period required to recoup the investment, which may be less appealing to investors.
Overall, years purchase is a useful tool for investors, appraisers, and analysts to evaluate the value and potential financial return of an investment or income stream.
Common Misspellings for YEARS PURCHASE
- yuear's purchase
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- 7ears purchase
- 6ears purchase
- ywars purchase
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- y4ars purchase
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- yezrs purchase
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- yeafs purchase
Etymology of YEARS PURCHASE
The term "years purchase" in real estate parlance refers to a method of valuing land or property. The word "purchase" in this context means the value of the property expressed as a multiple of its annual rental income. The term dates back to the 16th century and has its origins in English common law.
The etymology of the phrase can be broken down as follows:
1. Years: refers to the number of years that the rental income is capitalized or multiplied by to determine the property's value. It represents a specific duration, typically used for calculating investments or annuities.
2. Purchase: originally derived from the Latin word "purchasare", meaning to acquire or obtain. In this context, it signifies the process of evaluating and acquiring the property's value in terms of rental income.
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