Property Valuation
An appraiser uses the income approach and determines a net operating income of $75,000 with a cap rate of 6%. What is the estimated value?
A$450,000
B$1,250,000✓ Correct
C$750,000
D$4,500,000
Explanation
Value = NOI ÷ Cap Rate = $75,000 ÷ 0.06 = $1,250,000.
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Key Terms to Know
Capitalization Rate (Cap Rate)
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
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