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?
Correct Answer
A) $800,000
Using the capitalisation approach formula: Value = Net Annual Income ÷ Capitalisation Rate. Therefore: $40,000 ÷ 0.05 = $800,000. The net income after outgoings is used, not the gross rental income.
Why This Is the Correct Answer
Use the net income after outgoings: $40,000 divided by 0.05 is $800,000.
Why the Other Options Are Wrong
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