In the land residual technique, the income attributable to the building is treated how?

Correct Answer

C) Deducted, and the remainder capitalized as land

Why this is correct: In the land residual technique, the income attributable to the building is deducted, and the remainder is capitalized as land value. The steps are: 1) Calculate building income: Building Value multiplied by Building Capitalization Rate. 2) Deduct this building income from the total Net Operating Income (NOI). 3) Capitalize the remaining income (attributed to the land) using the Land Capitalization Rate to estimate Land Value. Why the other choices are wrong: "Added to the total net operating income figure" is incorrect; it is subtracted. "Ignored, since only land income is capitalized" is wrong; building income must be calculated first to isolate the land's portion. "Capitalized at the same rate used for the land" is incorrect; building and land typically have different risk profiles and thus different cap rates. Exam tip: The formula is: Land Value = (NOI - (Building Value * R_building)) / R_land.