What does a capitalization rate (cap rate) measure?
Why The relationship between net operating income and property value Is Correct
Answer B: The relationship between net operating income and property value
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
People Also Study
Related California Questions
- A property has a NOI (Net Operating Income) of $54,000. If the capitalization rate is 6%, what is the estimated property value?Real Estate Math
- A property has an annual gross income of $120,000 and operating expenses of $48,000. Using a capitalization rate of 6%, what is the property's estimated value?Real Estate Math
- A property has a net operating income (NOI) of $36,000 per year. If the cap rate is 6%, what is the property's value?Real Estate Math
- A property's effective gross income is $108,000 per year. Operating expenses are $42,000. At a 7% cap rate, what is the estimated value?Real Estate Math
- A property generates a net operating income of $50,000 and is valued using a 5% cap rate. What is the estimated value?Property Valuation
- An appraiser determines a property has a capitalization rate of 8% and a NOI of $80,000. What is the estimated value?Property Valuation
- Which factor would most likely increase the capitalization rate an investor requires for an income property?Property Valuation
- A property generates an NOI of $60,000. Comparable properties sell at a 5% cap rate. What is the indicated value using the income approach?Property Valuation
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.
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.
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.
Study This Topic
Practice More California Real Estate Questions
1,500+ questions covering all exam topics. Start free — no signup required.
Take the Free California Quiz →