A commercial property has a Net Operating Income (NOI) of $120,000 and a capitalization rate of 8%. What is the estimated property value?
Correct Answer
B) $1,500,000
Property value is calculated using the formula: Value = NOI ÷ Cap Rate. Therefore, $120,000 ÷ 0.08 = $1,500,000. This capitalization approach is a fundamental method for valuing income-producing commercial properties.
Why This Is the Correct Answer
Option B ($1,500,000) is correct because it properly applies the income capitalization formula: Property Value = Net Operating Income ÷ Capitalization Rate. Using the given figures: $120,000 ÷ 0.08 = $1,500,000. This method is recognized under Canadian appraisal standards and is fundamental to commercial property valuation. The calculation demonstrates the direct relationship between NOI and property value at a given cap rate, providing investors and lenders with a standardized approach to assess commercial real estate investments.
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A commercial property has a gross rental income of $120,000 annually and operating expenses of $45,000. If the capitalization rate is 8%, what is the estimated property value?
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A commercial property has a Net Operating Income (NOI) of $120,000 and was purchased for $1,500,000. What is the capitalization rate?