In the income approach to value, the capitalization rate (cap rate) is calculated as:
Why NOI divided by the property value Is Correct
Answer A: NOI divided by the 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
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 Colorado Questions
- A Colorado appraiser uses the 'Income Capitalization' approach on a commercial property. The NOI is $85,000 and the market cap rate is 6.5%. What is the value?Property Valuation
- In the income approach to valuation, the capitalization rate (cap rate) is calculated as:Property Valuation
- Using the income approach: a Colorado commercial property generates $80,000 NOI. Comparable properties sell at a 7% cap rate. What is the property's indicated value?Real Estate Math
- A Colorado property's cap rate is 8% and the NOI is $64,000. What is the property's value under the income approach?Real Estate Math
- The income capitalization approach to value is most commonly applied to:Property Valuation
- A Colorado property has gross annual rents of $100,000. Operating expenses are $40,000. The cap rate is 8%. What is the market value?Real Estate Math
- A Colorado home has a market value of $500,000. The residential assessment rate is 7.15%. What is the assessed value?Real Estate Math
- A Colorado property has an NOI of $48,000 and sells at a 6% capitalization rate. What is the indicated value?Finance
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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
Study This Topic
Practice More Colorado Real Estate Questions
1,400+ questions covering all exam topics. Start free — no signup required.
Take the Free Colorado Quiz →