Humber/Ontario Real Estate Course 4 Exam Practice

Which would be the most appropriate approach to value when establishing value for an investor-owned triplex?

1. The Cost Approach

2. The Direct Comparison Approach

3. The Income Approach

4. The Special Purpose Approach

The correct answer is: The Direct Comparison Approach

The most appropriate approach to value an investor-owned triplex is the Income Approach. This method is specifically designed to assess properties that generate income, such as rental properties, making it ideal for an investment scenario like a triplex. The Income Approach focuses on the revenue the property can generate through rents and underscores the potential return on investment for the owner. The Income Approach considers factors such as the current rental income, market occupancy rates, and operating expenses. Investors are primarily interested in how much income a property can produce, leading to a valuation based on capitalization rates and net operating income. This method provides a more relevant valuation for investors, as it reflects the property's ability to generate cash flow. While the Direct Comparison Approach, which looks at recent sales of comparable properties, can offer insights into market value, it does not consider the property's income-generating potential as effectively as the Income Approach does. The Cost Approach, which estimates value based on the cost to replace the structure minus depreciation, may not give an accurate representation of value in an investor context. Lastly, the Special Purpose Approach applies primarily to unique properties with specialized uses, making it unsuitable for standard investment properties like a triplex.