Humber/Ontario Real Estate Course 3 Exam Practice

In the case of an investor-owned triplex, the best approach to determine its value is:

1. The Market Value Approach

2. The Cost Approach

3. The Direct Comparison Approach

4. The Unit Comparison Approach

5. The Income Approach

6. The Special Purpose Approach

The correct answer is: The Income Approach

The Income Approach is the most suitable method for determining the value of an investor-owned triplex because this approach focuses specifically on the revenue-generating potential of the property. Investors typically purchase multifamily properties, like triplexes, for their ability to generate rental income. The Income Approach involves calculating the net operating income (NOI) of the property and then applying a capitalization rate (cap rate) to determine the property's value. This method effectively reflects the financial performance of the triplex, considering both the income it produces and the expenses associated with its operation. Other approaches like the Market Value Approach or the Direct Comparison Approach may provide insights into general market conditions or comparative sales, but they do not delve deeply into the specifics of income generation and operational costs that are crucial for investors. The Cost Approach, while useful in some scenarios, primarily assesses the cost of constructing a similar property, which may not accurately represent its market value based on investment returns. The Unit Comparison Approach and the Special Purpose Approach are typically less relevant for income-generating properties like a triplex, as they focus on different valuation criteria that do not center on income production.