A commercial property generates annual rental income of $120,000 with operating expenses of $25,000. Using a capitalisation rate of 7.5%, what is the property's value using the capitalisation approach?
Correct Answer
A) $1,266,667
The capitalisation approach uses Net Operating Income divided by the capitalisation rate. NOI = $120,000 - $25,000 = $95,000. Value = $95,000 ÷ 0.075 = $1,266,667.
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Previous Question
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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