A commercial property generates $120,000 annual rent with operating expenses of $30,000. Using a capitalisation rate of 7.5%, what is the property's value using the capitalisation approach?
Correct Answer
A) $1,200,000
The capitalisation approach uses net operating income divided by the capitalisation rate. Net income = $120,000 - $30,000 = $90,000. Property value = $90,000 ÷ 0.075 = $1,200,000. This method reflects the property's income-producing capacity.
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A commercial property generates $120,000 annual net income. Using a capitalisation rate of 8%, what is the indicated value using the capitalisation approach?
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