ValuationIncome_approachMEDIUM
The capitalization rate (cap rate) is calculated as:
Correct Answer
B) Net operating income divided by property value
The capitalization rate (cap rate) is calculated by dividing the property's net operating income (NOI) by its current market value or purchase price: Cap Rate = NOI ÷ Value. It is used in the income approach to convert income into an estimate of property value.
Answer Options
A
Property value divided by net operating incomeB
Net operating income divided by property valueC
Gross rent multiplied by gross rent multiplierD
Total expenses divided by total 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:
Net Operating Income (NOI)Income Approach to ValueGross Rent MultiplierDirect Capitalization
Key Terms:
cap ratenet operating incomeNOIincome approachcapitalization
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