A commercial property generates annual rental income of $120,000. Using a capitalisation rate of 8%, what would be the estimated value using the capitalisation approach?
Correct Answer
B) $1,500,000
Using the capitalisation approach formula: Value = Annual Income ÷ Capitalisation Rate. Therefore, $120,000 ÷ 0.08 = $1,500,000. This method is commonly used for income-producing properties where the rental income and appropriate cap rate can be determined.
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A commercial property generates annual net rental income of $120,000. If the appropriate capitalisation rate for similar properties is 6%, what is the estimated value using the capitalisation approach?
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