Property Valuation
In the income capitalization approach, if a Minnesota rental property has a Net Operating Income (NOI) of $48,000 and the capitalization rate is 6%, what is the estimated value?
A$288,000
B$480,000
C$800,000✓ Correct
D$960,000
Explanation
Value = NOI / Cap Rate = $48,000 / 0.06 = $800,000.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
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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