Property Valuation
In Alaska, the 'income multiplier' approach is less precise than direct capitalization because it:
ADoes not account for vacancy
BUses gross income and does not consider operating expenses or vacancy✓ Correct
COnly applies to commercial properties
DRequires more comparable sales data
Explanation
The GRM/GIM uses gross income before deducting vacancies and operating expenses, so two properties with the same gross income but very different vacancy rates and expense structures would appear to have the same value. Direct capitalization uses NOI, which accounts for these factors and is more precise.
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Key Terms to Know
Gross Rent Multiplier (GRM)
A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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.
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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