The annual net operating income from an apartment house is $22,000. With a capitalization rate of 11%, what is the indicated market value?

To determine the indicated market value of the apartment house, you can use the formula for capitalization value, which is derived from the relationship between net operating income (NOI) and the capitalization rate. The formula is:

Market Value = Net Operating Income / Capitalization Rate

In this case, the annual net operating income is $22,000, and the capitalization rate is 11%, or 0.11 in decimal form. Plugging the values into the formula gives:

Market Value = $22,000 / 0.11

When you perform the calculation, you divide $22,000 by 0.11:

Market Value = $22,000 / 0.11 = $200,000

This means that the indicated market value of the apartment house is indeed $200,000. This calculation reflects how the net operating income, when divided by the capitalization rate, reveals the property's value based on its earning potential. Understanding this relationship is crucial for appraisers, as it helps to gauge what a property is worth in the market based on its income-generating capabilities.