A property generates $60,000 in annual net operating income. If the prevailing cap rate is 6%, what is the estimated value?
Why $1,000,000 Is Correct
Answer C: $1,000,000
Exam Tip: Property Valuation
Valuation questions focus on the three approaches to value: sales comparison, cost, and income. Know which approach is best for which property type. The income approach uses cap rate and NOI — memorize these formulas.
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Key Terms to Know
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Math Concepts
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