Real Estate Math
A property's net operating income is $36,000 annually. If the cap rate is 8%, what is the property's estimated value?
A$288,000
B$450,000✓ Correct
C$360,000
D$400,000
Explanation
Value = NOI ÷ Cap Rate = $36,000 ÷ 0.08 = $450,000.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Math Concepts
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