Real Estate Math
A property has an annual gross income of $120,000 and operating expenses of $48,000. Using a capitalization rate of 6%, what is the property's estimated value?
A$800,000
B$1,200,000✓ Correct
C$720,000
D$2,000,000
Explanation
Net Operating Income (NOI) = Gross Income – Operating Expenses = $120,000 – $48,000 = $72,000. Value = NOI ÷ Cap Rate = $72,000 ÷ 0.06 = $1,200,000. The income approach to value uses NOI divided by the capitalization rate.
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