Find the value by use of the income approach. (round to the nearest $100)
1) an older three-unit apartment rents for $1,000 per month per unit
2) vacancy factor of 5%
3) annual operating expenses $10,000
4) capitalization rate of 8%

Question

Quizplus · Accepted Answer

The annual gross income is $36,000 ($1,000 x 3 units x 12 months). After accounting for a 5% vacancy factor, the effective gross income is $34,200. Subtracting $10,000 in operating expenses gives a net operating income (NOI) of $24,200. Dividing the NOI by the capitalization rate of 8% gives a property value of $302,500.

Find the Value by Use of the Income Approach