Property Valuation
Vermont's 'direct capitalization' approach to income property valuation is most reliable when:
AThe property has significant vacancy
BIncome and expenses are stable and a single year's NOI is representative of future performance✓ Correct
CThe property is newly constructed with no operating history
DThe property is in the development stage
Explanation
Direct capitalization (V = NOI / Cap Rate) is most reliable for stabilized properties with consistent, representative income and expenses. It uses a single year's NOI as a proxy for ongoing performance.
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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.
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.
Math Concepts
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