Question

An income-producing property will be held for a five-year period. If you are using an income capitalisation approach, what will you be using to estimate it's value at the end of the holding period?

Answer 1

When estimating the value of an income-producing property using an income capitalization approach, you would typically use the Net Operating Income (NOI) and a capitalization rate.

Step-by-step explanation:

When using an income capitalization approach to estimate the value of an income-producing property at the end of a holding period, you would typically use the Net Operating Income (NOI) and a capitalization rate. The NOI is the income generated by the property after deducting operating expenses and vacancy costs. The capitalization rate is the rate of return required by investors for a property of similar type and risk.

For example, if the NOI of an income-producing property is $50,000 and the capitalization rate is 8%, the estimated value of the property at the end of the holding period would be $625,000 ($50,000 divided by 0.08).