A commercial property generates $180,000 in gross rental income annually. Operating expenses are $45,000, and the property is valued using a 7% capitalization rate. What is the indicated value using the income approach?
Correct Answer
C) $1,928,571
Using the income approach, Net Operating Income = $180,000 − $45,000 = $135,000. Value = NOI ÷ Cap Rate = $135,000 ÷ 0.07 = $1,928,571. Operating expenses are deducted before the income is capitalized.
Why This Is the Correct Answer
$1,928,571 is correct. NOI = $180,000 − $45,000 = $135,000, and $135,000 ÷ 0.07 = $1,928,571. Check: 7% of $1,928,571 is about $135,000.
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Previous Question
A commercial property generates $120,000 in annual net operating income. If the capitalization rate for similar properties in the area is 8%, what is the estimated value using the income approach?
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A commercial property has a gross rental income of $120,000 annually, operating expenses of $35,000, and comparable properties are selling at a 7.5% cap rate. Using the income approach, what is the estimated property value?