ValuationIncome ApproachMEDIUM
Which formula correctly calculates the capitalization rate (cap rate)?
Correct Answer
B) Net operating income divided by value (NOI ÷ Value)
The capitalization rate is calculated by dividing the property's net operating income (NOI) by its current market value or sales price (Cap Rate = NOI ÷ Value). It is used in the income approach to appraisal to convert income into an estimate of value.
Answer Options
A
Value divided by net operating income (Value ÷ NOI)B
Net operating income divided by value (NOI ÷ Value)C
Gross rent multiplied by the 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:
income approach to appraisalnet operating income (NOI)gross rent multiplier (GRM)IRV formuladirect capitalization
Key Terms:
capitalization ratecap ratenet operating incomeNOIincome approachIRV formula
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