An apartment community with an effective gross income of $2,123,235, total operating expense of $1,166,489, and annual debt service of $731,724 in a 5.5% cap rate market has a value of $___________ based on the income approach.

The income approach calculates an apartment's value using the market capitalization rate and net operating income.

  • For this apartment community, the market cap rate is 5.5% and the net operating income is $956,746 (effective gross income - total operating expense). Debt service is used in the cash flow calculation, not the net operating income calculation, so it is not used in the income approach
  • The value is $956,746/5.5%, or $17,395,381.80