Property Valuation
In the income capitalization approach, the capitalization rate is derived by:
ADividing the net operating income by the property value✓ Correct
BSubtracting the vacancy rate from gross income
CMultiplying gross rent by the gross rent multiplier
DAdding all operating expenses and dividing by gross income
Explanation
Cap Rate = Net Operating Income ÷ Property Value (or Sales Price). This formula can be rearranged: Value = NOI ÷ Cap Rate. A lower cap rate indicates a higher value relative to income.
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