Property Valuation
A Connecticut appraiser values a 10-unit apartment building at $1,200,000. The NOI is $84,000. The cap rate used is:
A6.0%
B6.5%
C7.0%✓ Correct
D7.5%
Explanation
Cap rate = NOI ÷ Value = $84,000 ÷ $1,200,000 = 0.07 = 7.
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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.
AppraisalA professional estimate of a property's market value prepared by a licensed or certified appraiser.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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