Certified Apartment Portfolio Supervisor (CAPS) Practice Exam - Module 2

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To determine Property Value, which calculation should be performed?

  1. Annual NOI multiplied by Cap Rate

  2. Annual NOI divided by Cap Rate

  3. Property Value multiplied by Annual NOI

  4. Cap Rate divided by Annual NOI

The correct answer is: Annual NOI divided by Cap Rate

The correct calculation to determine Property Value involves dividing the Annual Net Operating Income (NOI) by the Capitalization Rate (Cap Rate). This approach reflects the relationship between income generated from the property and the expected return on investment, which is fundamental in real estate valuation. The capitalized value of a property is based on its ability to generate income. By dividing the Annual NOI by the Cap Rate, you derive the present value of the income stream, effectively estimating what the property is worth based on its earnings potential. This method is widely used in real estate investment analysis, as it offers a straightforward way to assess whether an investment meets financial performance expectations. Understanding this principle helps investors and property managers gauge whether a property is undervalued or overvalued in the market, ultimately guiding better investment decisions.

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