Property Valuation
The capitalization rate (cap rate) is calculated as:
AGross Rent ÷ Purchase Price
BNet Operating Income ÷ Property Value✓ Correct
CEffective Gross Income ÷ Loan Amount
DCash Flow ÷ Down Payment
Explanation
Cap Rate = Net Operating Income (NOI) ÷ Property Value (or purchase price). NOI is effective gross income minus operating expenses (excluding debt service). Cap rates are used to evaluate and compare investment properties; a lower cap rate generally indicates lower risk or higher demand.
Related Alaska Property Valuation Questions
- A Fairbanks property's estimated remaining economic life is 35 years. The building is 15 years old with an original economic life of 50 years. The effective age is:
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