A property generates $60,000 in annual rental income with operating expenses of $18,000. If the capitalization rate is 8%, what is the estimated value using the income approach?
Correct Answer
D) $525,000
The income approach uses Net Operating Income (NOI) divided by the capitalization rate. NOI = $60,000 - $18,000 = $42,000. Value = $42,000 ÷ 0.08 = $525,000.
Why This Is the Correct Answer
Option D is correct because the income approach formula is Value = Net Operating Income ÷ Capitalization Rate. First, calculate NOI: $60,000 (rental income) - $18,000 (operating expenses) = $42,000. Then apply the formula: $42,000 ÷ 0.08 = $525,000. This method capitalizes the property's net income stream to determine market value.
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A property has a land value of $300,000 and replacement cost of $450,000. Physical depreciation is estimated at $50,000, functional obsolescence at $30,000, and external obsolescence at $20,000. What is the property's estimated value using the cost approach?