Property Valuation
A property's NOI is $45,000 and the cap rate is 7.5%. Using the income approach, what is the indicated value?
A$590,000
B$600,000✓ Correct
C$620,000
D$640,000
Explanation
Value = NOI ÷ Cap rate = $45,000 ÷ 0.075 = $600,000.
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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.
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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