ValuationIncome ApproachMEDIUM
Which formula correctly calculates the capitalization (cap) rate?
Correct Answer
B) Net operating income divided by property value (NOI ÷ 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 estimate the value of income-producing properties.
Answer Options
A
Property value divided by net operating income (Value ÷ NOI)B
Net operating income divided by property value (NOI ÷ Value)C
Gross monthly rent multiplied by gross rent multiplier (Rent × GRM)D
Total expenses divided by gross income (Expenses ÷ Income)Why 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 multiplier (GRM)property valuation
Key Terms:
cap ratecapitalization ratenet operating incomeNOIincome approachproperty value
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