Property Valuation
In Minnesota, 'economic rent' in property valuation refers to:
AThe rent currently being paid by a tenant
BThe rent that would be justified by the land's highest and best use, reflecting its full economic contribution✓ Correct
CThe minimum rent required to cover operating expenses
DThe rent set by government regulation for affordable housing
Explanation
Economic rent is the return that a factor of production (land) earns above its opportunity cost. In real estate, it refers to the income generated by the land based on its most productive use—its highest and best use value.
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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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
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