Property Valuation
In New York, a 'net lease' (NNN) property is typically valued using which primary approach?
ACost approach
BIncome approach (specifically direct capitalization)✓ Correct
CSales comparison approach using comparable building sales
DGross rent multiplier approach
Explanation
Net lease (NNN) properties are investment properties where investors' primary motivation is the income stream. The income approach — specifically direct capitalization (NOI divided by cap rate) — is the primary valuation method.
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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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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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