ValuationIncome_approachMEDIUM
Which formula correctly calculates the capitalization rate?
Correct Answer
B) Net Operating Income (NOI) ÷ Property Value
The capitalization rate (cap rate) is calculated by dividing the Net Operating Income (NOI) by the property's value or sales price: Cap Rate = NOI ÷ Value. It expresses the relationship between a property's income and its value, and is a key metric used in the income approach to appraisal.
Answer Options
A
Property Value ÷ Net Operating Income (NOI)B
Net Operating Income (NOI) ÷ Property ValueC
Gross Rent × Gross Rent Multiplier (GRM)D
Total Expenses ÷ 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:
net operating income (NOI)income approachgross rent multiplier (GRM)property valuationinvestment analysis
Key Terms:
capitalization ratecap ratenet operating incomeNOIincome approachproperty value
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