An investment property generates $75,000 gross annual rent with operating expenses of $15,000. If the market capitalisation rate is 7%, what is the property's estimated value?
Correct Answer
A) $857,143
The capitalisation approach uses net income: ($75,000 - $15,000) ÷ 0.07 = $60,000 ÷ 0.07 = $857,143. Operating expenses must be deducted from gross income to determine net operating income.
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An investment property generates annual rental income of $48,000. After deducting outgoings of $8,000, the net annual income is $40,000. If the appropriate capitalisation rate is 5%, what is the estimated value using the capitalisation approach?