Property Valuation
The income capitalization approach to value divides a property's net operating income (NOI) by the:
AGross rent multiplier
BCapitalization rate✓ Correct
CLoan-to-value ratio
DEffective gross income
Explanation
Value = NOI ÷ Cap Rate. The capitalization rate converts a property's net operating income into an estimate of value. Cap rates reflect market expectations for risk and return on investment properties.
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