In November 2026, trainee appraiser Miguel Santos has calculated potential gross income, effective gross income, and NOI for a small apartment building. To apply a direct capitalization rate, which figure should he generally capitalize?
Correct Answer
A) The net operating income after vacancy and operating expenses
Direct capitalization generally converts NOI into value. That figure reflects the property's operating income after vacancy and operating expenses, but before debt service and taxes, making it the standard income base for a capitalization rate.
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Previous Question
In October 2026, appraiser Caleb Moore is reviewing an income statement for Oak Place. The property's NOI is $67,500, the expense ratio is 25%, and vacancy and collection loss is 10% of potential gross income. Assuming there is no other income, what is the property's potential gross income?
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Each of the following statements about a gross rent multiplier is accurate EXCEPT.