Exam math
Cap rate, NOI and gross rent multiplier
The income approach in two steps: build the net operating income, then capitalise it. Most missed questions here are not conceptual, they are a vacancy deduction skipped or an expense included that should not have been.
Your figures
Annual rent if every unit were occupied at market. This is the figure the GRM uses, and it is gross rather than net.
Deducted FIRST, before operating expenses. Skipping this step is the most common error in a multi-step income question.
Taxes, insurance, management, maintenance, utilities and a reserve for replacement. Never debt service, depreciation, capital improvements or the owner's income tax.
Taken from comparable sales. A lower rate normally signals lower perceived risk or stronger growth expectations.
Used to derive the implied cap rate and the gross rent multiplier.
Value from the cap rate
$1,266,667
NOI of $76,000 divided by a 6% capitalization rate. At the price you entered the implied cap rate is 7.6%.
Price divided by GROSS income. No deduction for vacancy or expenses.
The IRV triangle
Income over Rate gives Value. Income over Value gives Rate. Rate times Value gives Income. Cover the unknown with a finger and the remaining two show the operation. It is the single most useful formula on the whole examination.
Complete results, no email, no account. Every calculation here is backed by a tested fixture, so the figure you see is the figure the test asserts. How we verify
How this is calculated
The NOI ladder runs in a fixed order. Start with gross scheduled income, which is the rent if every unit were occupied at market. Deduct vacancy and collection loss to reach effective gross income. Deduct operating expenses to reach net operating income. Nothing else comes out.
What is not an operating expense is where marks are lost. Debt service is a financing cost. Book depreciation is a tax construct. Capital improvements are not operating costs. The owner's income tax is personal. All four are excluded, because NOI describes the property rather than the owner's financing or tax position, and that is exactly what makes it comparable across buildings. A reserve for replacement of short-lived components does belong in the ladder.
Value then follows from the IRV triangle: NOI divided by the capitalization rate. The gross rent multiplier is a different measure entirely, dividing price by GROSS income with no deduction at all, which is why it is a screening comparison rather than a valuation method.
Full coverage of the approaches, the depreciation vocabulary and the value principles is in Property Valuation and Financial Analysis, which is 14% of the examination.