Income Approach and Capitalization Flashcards
6 cards from real SAEE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Income Approach and Capitalization flashcards as text
Which income approach method estimates value by dividing a single year's net operating income by an overall capitalization rate?
Answer: Direct capitalization
Direct capitalization converts a single year's stabilized NOI into a value indication by dividing it by an overall cap rate.
What is net operating income (NOI) in real property appraisal?
Answer: Potential gross income minus vacancy and operating expenses
NOI equals potential gross income less vacancy and collection loss and all operating expenses, but before debt service.
A property generates $80,000 NOI and comparable sales indicate an overall cap rate of 8%. What is the indicated value?
Answer: $1,000,000
$80,000 ÷ 0.08 = $1,000,000 using the direct capitalization formula V = NOI / R.
Which of the following is NOT typically included as an operating expense in an income approach analysis?
Answer: Mortgage debt service
Mortgage debt service is a financing cost and is excluded from operating expenses when calculating NOI.
In yield capitalization, the discount rate used reflects the:
Answer: Total required return on the investment including risk
The discount rate in yield capitalization represents the investor's required total return, accounting for risk and the time value of money.
The gross rent multiplier (GRM) is calculated by dividing:
Answer: Sale price by gross annual rental income
GRM = Sale Price ÷ Gross Annual Rental Income, providing a quick value indicator for residential income properties.