Property Valuation
Under the income approach to value, the capitalization rate (cap rate) is used to:
ACalculate mortgage payments
BConvert net operating income into an estimate of property value✓ Correct
CDetermine property tax assessments
DCalculate depreciation for tax purposes
Explanation
The cap rate converts a property's net operating income (NOI) into a value estimate: Value = NOI / Cap Rate. A lower cap rate implies higher value for the same income.
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