Property Valuation
When appraising a Providence multi-family investment property, which approach to value would the appraiser most heavily weight?
ASales comparison approach
BCost approach
CIncome capitalization approach✓ Correct
DGross rent multiplier approach only
Explanation
For income-producing properties such as multi-family investment properties, the income capitalization approach is given the most weight because investors primarily value such properties based on their income-generating potential.
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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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
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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