In the income approach to value, the capitalization rate is calculated as:
Why Net Operating Income divided by Sale Price Is Correct
Answer A: Net Operating Income divided by Sale Price
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.
Key Property Valuation Terms in This Question
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.
People Also Study
Related Arizona Questions
- An Arizona property produces a Net Operating Income (NOI) of $120,000 per year. Using a capitalization rate of 6%, what is the estimated value?Property Valuation
- In the income approach, a property generates $36,000 annual net operating income (NOI). If the capitalization rate is 6%, what is the estimated value?Property Valuation
- A property's net operating income (NOI) is $48,000 and the cap rate is 8%. What is the estimated property value using the income approach?Real Estate Math
- In the income approach to value, what does capitalization rate (cap rate) measure?Property Valuation
- An Arizona appraiser using the income approach to value a commercial property calculates a capitalization rate of 7%. If the net operating income (NOI) is $105,000, what is the estimated property value?Property Valuation
- An Arizona property has annual gross income of $96,000, vacancies of 8%, and operating expenses of $32,000. If the cap rate is 7%, what is the value?Real Estate Math
- An Arizona property has a potential gross income of $108,000, a 6% vacancy rate, and $36,000 in operating expenses. If properties in the area sell at a 7.5% cap rate, what is the estimated value?Real Estate Math
- An apartment property has a gross scheduled income of $150,000, a 6% vacancy, and expenses of $55,000. If similar properties sell at a 7% cap rate and a 10x EGIM, what does the income approach indicate as value?Real Estate Math
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.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Study This Topic
Practice More Arizona Real Estate Questions
1,400+ questions covering all exam topics. Start free — no signup required.
Take the Free Arizona Quiz →