Property Valuation
An appraiser is using the income approach to value a 10-unit apartment building in Olympia. Annual gross rents total $144,000, vacancy and collection loss is 5%, and operating expenses are $52,000. What is the NOI?
A$84,800
B$92,000
C$85,600✓ Correct
D$86,800
Explanation
NOI = (Gross rents × (1 – vacancy)) – operating expenses = ($144,000 × 0.95) – $52,000 = $136,800 – $52,000 = $84,800.
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Key Terms to Know
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.
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.
Math Concepts
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