The Income Capitalization Approach for Appraisals


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question 1 of 3

A rental property brings in $500 a month in rent, and has annual net operating expenses of $2,500. What is the net operating income (NOI) of this property?

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1. Sally is looking to buy a property that costs $115,000, and can rent for $750 a month. She has done some research and has determined the net operating expenses to be $5,000 per year. Her desired cap rate is 7%. What is the appraisal value of this property rounded to the nearest dollar using the income capitalization approach?

2. What are some sources of revenue for calculating the net operating income?

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About This Quiz & Worksheet

This quiz and worksheet combo will gauge your understanding of the income capitalization approach for appraisals. You will be tested on concepts such as the cap rate and NOI.

Quiz & Worksheet Goals

Use these assessment tools to test your knowledge of:

  • Calculating the net operating income (NOI)
  • Finding the appraisal value of a property
  • Sources of revenue for calculating the net operating income
  • Expenses included in calculating NOI for a rental property
  • The cap rate

Skills Practiced

This worksheet and quiz let you practice the following skills:

  • Problem solving - use developed knowledge to solve appraisal practice problems
  • Defining key concepts - show that you can accurately define key terms, such as income capitalization
  • Knowledge application - use what you have learned throughout the lesson to answer questions about finding the NOI

Additional Learning

To learn more about appraisals, review the lesson The Income Capitalization Approach for Appraisals. This lesson has the following goals:

  • Define income capitalization and how it can be used for appraisals
  • Demonstrate how to calculate the net operating income and the capitalization rate
  • Explain how to apply formulas to given data