Real Estate Math
A commercial property has an asking price of $1,200,000. The NOI is $84,000. What is the cap rate and is it above or below the market average of 7%?
A7% — equal to market✓ Correct
B6% — below market (higher price relative to income)
C8% — above market
D7.5% — above market
Explanation
Cap rate = $84,000 ÷ $1,200,000 = 7%. This equals the market average of 7%. To solve this, multiply the relevant values: $1,200,000 and $84,000 at 7%.. The correct answer is 7% — equal to market.. This is a common calculation on the Arkansas real estate exam.
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