A Jacksonville office building produces $450,000 in gross rental income annually. Operating expenses total $180,000 per year. If the market capitalization rate for similar properties is 8.5%, what is the indicated value using the income approach?
Correct Answer
A) $3,176,471
First calculate NOI: $450,000 - $180,000 = $270,000. Then apply the formula: Value = NOI ÷ Cap Rate = $270,000 ÷ 0.085 = $3,176,471. Option B uses gross income instead of NOI. Option C uses an incorrect cap rate calculation. Option D uses an incorrect mathematical operation.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Homestead portability allows homeowners to transfer a portion of their accumulated homestead tax savings to a new homestead in the same state.
The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
Many states have laws to limit how much property taxes can increase each year, regardless of market value fluctuations.
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Previous Question
A Florida appraiser is valuing a unique historical courthouse in St. Augustine that is being converted to a boutique hotel. There are no comparable sales of similar properties, and the income approach is difficult to apply due to the unique nature of the business. Which approach would be most appropriate and why?
Next Question
An appraiser in Fort Lauderdale is reconciling the three approaches to value for a small retail strip center. The cost approach indicates $1,200,000, the sales comparison approach indicates $1,350,000, and the income approach indicates $1,275,000. How should the appraiser determine the final value opinion?