SAEE 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 SAEE Income Approach and Capitalization flashcards as text
What does the capitalization rate (cap rate) represent in income property valuation?
Answer: The ratio of net operating income to property value
The cap rate is calculated by dividing the net operating income (NOI) by the property's current market value or purchase price.
In the income approach, what is Net Operating Income (NOI)?
Answer: Potential gross income minus vacancy and collection losses minus operating expenses
NOI is calculated by subtracting vacancy/collection losses and operating expenses, excluding debt service, from potential gross income.
What is the Direct Capitalization method?
Answer: Converting a single year's income estimate into a value indication by dividing by a cap rate
Direct capitalization converts a stabilized single year's NOI into a value estimate by dividing NOI by the overall capitalization rate.
Which of the following is typically NOT included as an operating expense in an income approach analysis?
Answer: Mortgage principal payments
Mortgage principal (debt service) is a financing cost, not an operating expense, so it is excluded from the NOI calculation.
What is a Gross Rent Multiplier (GRM)?
Answer: The ratio of sale price to gross rental income
GRM is a simple valuation metric calculated by dividing a property's sale price by its gross annual or monthly rental income.
In the Yield Capitalization (DCF) method, what does the discount rate represent?
Answer: The required rate of return on equity or total investment
The discount rate in DCF analysis reflects the investor's required rate of return on the total investment or equity, accounting for risk and opportunity cost.