A California appraiser is using the income approach for a mixed-use property in downtown Los Angeles. The property has retail space on the ground floor and apartments above. The apartments are subject to the LA Rent Stabilization Ordinance, but the retail space is not. How should the appraiser handle the income analysis?
Correct Answer
C) Value the residential and commercial components separately, applying different cap rates that reflect the different risk profiles, including the rent control impact on the residential portion
Mixed-use properties in California with different regulatory frameworks (rent-controlled residential and unrestricted commercial) require separate income analysis for each component. The residential portion subject to the LA RSO carries different risks (limited rent increases, just-cause eviction) than the unrestricted commercial space, warranting different cap rates. This approach produces a more accurate total value.
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Previous Question
In the income approach used in California, an appraiser starts with Potential Gross Income (PGI) and makes deductions to arrive at Net Operating Income (NOI). What is the correct sequence of deductions?
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A California appraiser needs to extract a GRM from a comparable sale. A fourplex in Riverside, California recently sold for $680,000. The four units were renting at $1,250, $1,300, $1,200, and $1,250 per month at the time of sale. What is the monthly Gross Rent Multiplier?