Question

If gross income on a property is 30,000, net income is $20,000 and the cap rate is 5%, the value of the property using the income capitalization method is

$600,000.
$400,000.
$6,000,000.
$4,000,000.

Answer 1

Answer:

$400,000

Explanation:

The computation of the  value of the property using the income capitalization method is presented below:

= Net income ÷ cap rate

= $20,000 ÷ 5%

= $400,000

For calculating the value of property via cap rate and by considering the income capitalization method, the gross income on a property should not be taken. Hence, ignored it