Property Valuation
In Alaska, the 'direct capitalization' method of valuation divides which two figures?
AGross rent divided by the sales price
BNet operating income (NOI) divided by the overall capitalization rate✓ Correct
CReplacement cost divided by the economic life
DGross income divided by the mortgage constant
Explanation
Direct capitalization: Value = NOI ÷ Cap Rate. This method converts a single year's net operating income into a value estimate by dividing by the appropriate market-derived capitalization rate.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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