Income Approach Capitalization Rate

The basic formula for this approach commonly referred to as irv is.

Income approach capitalization rate. The capitalization rate is a profitability metric used to determine the return on investment of a real estate property. Capitalization rate or cap rate is a measure of the ratio between the net operating income produced by an asset usually real estate and its capital cost the original price paid to buy the asset or alternatively its current market value. The rate is calculated in a simple fashion as follows. As you can see this appraisal approach consists of two main variables.

This return of 7 percent generated from the property investment fares better than the. Property market value net operating income noi capitalization rate. The capitalization rate and the net operating income noi. The capitalization rate will be computed as net operating income property value 70 000 1 million 7.

The income capitalization approach formula. The income capitalization formula looks like this. Net operating income i capitalization rate r value v you can break this formula down into these three steps. Estimating the net operating income.

Applying the irv formula to arrive at a value estimate. Determining the capitalization rate.