What calculation would you perform to determine the total value of property based on its income and rate?

To determine the total value of a property based on its income and capitalization rate, the correct calculation involves dividing the income generated by the property by the capitalization rate. This method is rooted in the income approach to valuation, which is commonly used in real estate appraisal, particularly for investment properties.

When you divide the income (often yearly net operating income or NOI) by the capitalization rate (expressed as a decimal), you are essentially calculating the present value of future income streams that the property is expected to generate. The capitalization rate represents the required rate of return for an investor on that property, reflecting the risk associated with the investment.

As an example, if a property generates $100,000 in annual income and the capitalization rate is 10% (or 0.10), the calculation would be $100,000 divided by 0.10, which results in a total property value of $1,000,000. This calculation allows investors to understand how much they should be willing to pay for the property based on the income it can produce.