Property Valuation
In Alaska, the 'mortgage-equity' (Ellwood) technique is an income approach method that considers:
AOnly the capitalization of NOI
BBoth the equity investor's return and the mortgage financing to derive an overall capitalization rate✓ Correct
COnly the equity yield rate without considering debt
DThe ratio of mortgage balance to equity
Explanation
The mortgage-equity (Ellwood) technique derives an overall capitalization rate by weighting the mortgage terms and equity requirements. It accounts for loan amortization, equity buildup, and investor yield requirements to produce a more refined capitalization rate for income properties with specific financing.
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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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
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