Question

An estimate of a property's value based on its net income and a reasonable return on the investment, which is calculated by dividing annual net income by the capitalization rate.

A. Depreciation
B. Appraisal
C. Gross rent multiplier
D. Capitalization

Answer 1

The correct answer is Option D: Capitalization. Capitalization is an estimate of a property's value based on its net income and a reasonable return on the investment.

Step-by-step explanation:

The correct answer is Option D: Capitalization.

Capitalization is an estimate of a property's value based on its net income and a reasonable return on the investment. It is calculated by dividing the annual net income by the capitalization rate. The capitalization rate is the desired rate of return for the investor.

For example, let's say a property generates an annual net income of $50,000 and the investor wants a 10% return on their investment. The capitalization rate would be 0.10. The estimated value of the property would then be $500,000 ($50,000 / 0.10).