Question

A property is being appraised using the income capitalization approach. Annually, it has an estimated gross income of $60,000, vacancy and credit losses of $3,000, and operating expenses of $20,000. Using a capitalization rate of ten percent, what is the indicated value (to the nearest $1,000)?

1.$370,000.
2.$400,000.
3.$600,000.
4.$570,000.

Answer 1

The appraised value of the property using the income capitalization approach, given a net operating income of $37,000 and a capitalization rate of 10%, is $370,000.

Step-by-step explanation:

To appraise a property using the income capitalization approach, you need to subtract vacancy and credit losses and operating expenses from the estimated gross income. Then, you apply the capitalization rate to the net operating income to determine the property's value.

The estimated gross income is $60,000. Subtracting the vacancy and credit losses of $3,000 and operating expenses of $20,000 gives a net operating income (NOI) of $37,000 ($60,000 - $3,000 - $20,000).

To find the indicated value, you divide the NOI by the capitalization rate of 10%:

Value = NOI / Capitalization Rate = $37,000 / 0.10 = $370,000.

So, the indicated value, to the nearest $1,000, would be $370,000.