ValuationIncome ApproachMEDIUM
The capitalization rate (cap rate) in the income approach is calculated by:
Correct Answer
B) Dividing net operating income by property value
Cap rate = Net Operating Income (NOI) ÷ Property Value. It represents the expected rate of return on an investment property. A higher cap rate indicates higher perceived risk and a potentially higher return.
Answer Options
A
Dividing property value by net incomeB
Dividing net operating income by property valueC
Multiplying gross rent by the GRMD
Subtracting expenses from gross incomeWhy This Is the Correct Answer
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Why the Other Options Are Wrong
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Deep Analysis of This Valuation Question
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Background Knowledge for Valuation
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Real World Application in Valuation
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Common Mistakes to Avoid on Valuation Questions
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Related Topics & Key Terms
Related Topics:
IRVrisk-returninvestment-analysis
Key Terms:
cap ratereturnIRVriskinverse
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