SU # 43__Income Approach Flashcards
A weakness of the income approach is that it
is difficult to determine an appropriate capitalization rate.
cannot be used with the other approaches to value.
depends on published income and expense figures.
yields a result that is unrelated to market value.
is difficult to determine an appropriate capitalization rate.
Why is the income capitalization method generally considered less effective than other methods for appraising single-family residences?
Single-family residences generate no income.
There is often little market data to use in setting rents and cap rates for the analysis.
Fixed and variable operating expenses cannot be distinguished.
Owners and investors are generally the same people.
There is often little market data to use in setting rents and cap rates for the analysis.
A property is estimated to produce a net operating income of $1,000,000. Which of the following capitalization rates would produce the greatest estimated value for the property?
5%
6%
7%
8%
5%
The income capitalization approach, or income approach, is most effectively used for appraising
special-purpose properties.
income or rental properties.
owner-occupied single family residential properties.
rural properties.
income or rental properties.
The capitalization rate represents
the amount of capital an investor will invest in a property.
the discounted price of an investment property.
the cost of borrowing money to acquire a property.
an investor’s desired rate of return on capital invested in a property.
an investor’s desired rate of return on capital invested in a property.
Potential gross income minus an allowance for vacancy and credit losses equals
net operating income.
effective gross income.
gross income.
total operating expenses.
effective gross income.
Effective gross income minus total operating expenses equals
net gross income.
net loss.
net operating income.
debt service.
net operating income.
A strength of the income capitalization approach is that it
uses a rate of return that is required for all potential purchasers in a market.
yields an accurate projection of investment income.
uses a method that is also used by investors to
determine how much they should pay for an investment property.
can be used with any type of property in any market.
uses a method that is also used by investors to
determine how much they should pay for an investment property.
An income property recently sold for $200,000, and the net operating income was $21,000. What was the capitalization rate for this property?
- 50%
- 50%
10%
10.50%
10.50%
A property is being appraised using the income capitalization approach. Annually, it has an estimated gross income of $30,000, vacancy and credit losses of $1,500, and operating expenses of $10,000. Using a capitalization rate of nine percent, what is the indicated value (to the nearest $1,000)?
$206,000.00
$167,000.00
$222,000.00
$180,000.00
$206,000.00
Which of the following statements best describes the income capitalization approach?
Apply a desired rate of return to the price paid for an income property.
Divide the income a property generates or might generate by a capitalization rate.
Estimate the amount of income a property must generate to return the capital amount invested in it.
Estimate the rate of return a property owner receives from income generated by the property.
Divide the income a property generates or might generate by a capitalization rate.
