Real Estate Math
A Delaware commercial property is listed at $1,200,000 with an annual NOI of $84,000. A buyer wants a 7% cap rate. Is the asking price justified?
ANo — at a 7% cap rate, the value is $1,200,000 which equals the asking price✓ Correct
BNo — at a 7% cap rate, the value is $1,200,000 which equals the asking price (alternative)
CNo — at a 7% cap rate, the value is $1,200,000 which matches exactly
DNo — at a 7% cap rate, the value is only $1,200,000; the asking price should be higher
Explanation
Value = NOI ÷ Cap Rate = $84,000 ÷ 0.07 = $1,200,000.
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