The Income Approach to Property Valuation

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Bill wants to buy a real estate investment from which he can expect an 8% cap rate. If the net operating income from a certain property is $6500 per year, what is the value to Bill of the home using the direct capitalization method?

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1. What is the gross income multiplier of a house that rents for $1,200 each month and would sell for $150,000?

2. The income approach to property valuation is useful for what kind of buyer?

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About This Quiz & Worksheet

Find out what you comprehend about income approach to property valuation with these study tools. Quiz questions will test you on how property is valued and what that means for buyers of real estate.

Quiz & Worksheet Goals

Use these tools to:

  • Determine the value of a home using the direct capitalization method
  • Identify the gross income multiplier of a given house
  • Assess the usefulness of the income approach to property valuation
  • Understand the discounted cash flow method
  • Recognize income approach to property valuation methods

Skills Practiced

Use the worksheet and quiz to practice the following:

  • Reading comprehension - ensure that you draw the most important information from the related lesson on income approach to property valuation
  • Making connections - use understanding of the concept of the value of a home and how it is connected to the direct capitalization method
  • Interpreting information - verify that you can read information regarding the gross income multiplier and interpret it correctly
  • Information recall - access the knowledge you've gained regarding the income approach to property valuation

Additional Learning

For more information on this subject, read the lesson named The Income Approach to Property Valuation. The lesson will cover the following study goals:

  • Define income approach
  • Understand how to calculate net operating income
  • Identify depreciation, mortgage interest and reserve funds
  • Determine how to calculate gross income multiplier
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