1. What is the House Estimate Formula?

The house estimate formula calculates property value using the income approach, which divides the Net Operating Income (NOI) by the capitalization rate (cap rate). This method is commonly used for rental properties and income-producing real estate.

2. How Does the Calculator Work?

The calculator uses the income approach formula:

Where:

• \( Value \) — Estimated property value ($)
• \( NOI \) — Net Operating Income ($/year)
• \( cap\_rate \) — Capitalization rate (decimal)

Explanation: This formula estimates property value based on its income-generating potential, with the cap rate reflecting the expected return on investment.

3. Importance of Property Valuation

Details: Accurate property valuation is essential for real estate investment decisions, financing, insurance purposes, and property tax assessments.

4. Using the Calculator

Tips: Enter NOI in dollars per year and cap rate as a decimal (e.g., 0.08 for 8%). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is Net Operating Income (NOI)?
A: NOI is the total income generated by a property minus all operating expenses, excluding mortgage payments and income taxes.

Q2: How is cap rate determined?
A: Cap rate is typically based on comparable properties in the same market, investor return expectations, and property risk factors.

Q3: What is a typical cap rate range?
A: Cap rates vary by market and property type, but generally range from 4% to 10% for most residential and commercial properties.

Q4: Are there limitations to this valuation method?
A: This method works best for income-producing properties and may not accurately value properties with unique characteristics or in rapidly changing markets.

Q5: Should this be the only method used for property valuation?
A: For a comprehensive valuation, it's best to use multiple approaches including comparable sales and cost approach methods.