Which formula is used to determine the Net Income Ratio (NIR)?

The Net Income Ratio (NIR) is determined using the formula that divides the overall capitalizing rate (Ro) by the Effective Gross Income Multiplier (EGIM). This relationship helps assess the proportion of net income relative to the gross income, providing insights into the profitability and operational efficiency of an investment property.

In this context, Ro represents the overall capitalization rate, which reflects the rate of return on an investment property. The EGIM is a metric that provides the relationship between the gross income generated by the property and its value. By using the division of Ro by the EGIM, you obtain the net income ratio, which measures how efficiently the property is generating net income compared to its gross income potential.

This formula is essential for real estate appraisers and investors as it sheds light on the income-producing ability of a property, aiding in making more informed investment decisions. In contrast, the other provided alternatives do not accurately reflect the proper calculation methodology for determining the Net Income Ratio.