An income-producing property generates a net operating income (NOI) of $35,000 annually. Using a capitalization rate of 7%, what is the estimated value of the property?
Correct Answer
C) $500,000
The income approach to value uses the formula: Value = NOI ÷ Capitalization Rate. Dividing the annual NOI of $35,000 by the cap rate of 7% (0.07) yields an estimated property value of $500,000. This method is commonly used to appraise income-producing properties such as apartment buildings and commercial real estate.
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