An appraiser is valuing a 15-unit apartment building. The building generates $180,000 in annual rental income with operating expenses of $60,000. If the capitalization rate for similar properties is 8%, what is the estimated value using the income approach?
Correct Answer
C) $1,500,000
Using the income approach formula: Value = Net Operating Income ÷ Capitalization Rate. Net Operating Income = $180,000 - $60,000 = $120,000. Value = $120,000 ÷ 0.08 = $1,500,000.
Why This Is the Correct Answer
Option C ($1,500,000) is correct because it properly applies the income approach formula: Property Value = Net Operating Income ÷ Capitalization Rate. First, calculate NOI: $180,000 (gross rental income) - $60,000 (operating expenses) = $120,000. Then divide by the cap rate: $120,000 ÷ 0.08 = $1,500,000. This method is recognized under Canadian appraisal standards and provincial real estate legislation as a valid approach for valuing income-producing properties.
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An appraiser is using the cost approach to value a custom-built heritage home. The reproduction cost new is estimated at $850,000, the land value is $300,000, and total depreciation is calculated at $180,000. What is the property's estimated value using this approach?
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