How is investment value typically calculated?

Investment value is calculated by evaluating the potential income that a property can generate, which is represented by the net operating income (NOI), and then applying a capitalization rate. The capitalization rate is a method used in real estate to estimate the return on investment. It is expressed as a percentage and is derived from the relationship between NOI and property value. By dividing the NOI by the capitalization rate, investors can assess the value of the investment based on its income-generating potential.

This approach emphasizes the income aspect of real estate investments, making it particularly relevant for investors who view properties as income-producing assets. It allows investors to make informed decisions based on the financial performance of a property rather than just its physical attributes or market trends.