Ace the Illinois Real Estate Exam 2025 – Unlock Your Property Pro Potential!

To determine the value of the apartment building using the income approach, you'll start by calculating the net operating income (NOI). The net operating income is found by subtracting operating expenses from the gross income.

In this scenario, the gross income is $60,000, and the operating expenses are $10,000:

Net Operating Income (NOI) = Gross Income - Operating Expenses

NOI = $60,000 - $10,000 = $50,000

Once you have the net operating income, you can calculate the property value using the capitalization rate. The formula used is:

Value = Net Operating Income / Capitalization Rate

Given that the capitalization rate is 8% (or 0.08 when expressed as a decimal):

Value = $50,000 / 0.08

Value = $625,000

Therefore, the correct value of the apartment building, according to the income approach, is $625,000. This aligns with option D.

This calculation exemplifies how the income approach is utilized in real estate appraisals, focusing on the income-generating capability of the property, which is fundamental in evaluating investment properties.