Property Valuation
The income approach to value is most appropriate for:
ASingle-family residential homes
BIncome-producing properties such as apartment buildings✓ Correct
CVacant land
DNewly constructed properties
Explanation
The income approach is most appropriate for income-producing properties. It converts the property's net operating income into an estimate of value using a capitalization rate.
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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.
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.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Math Concepts
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