Real Estate Math
A Florida duplex has two units, each renting for $900/month. Annual operating expenses total $8,400. The investor wants a 9% return on a cash purchase. What price should the investor pay?
A$187,000
B$146,667✓ Correct
C$240,000
D$133,333
Explanation
Annual Gross Income = 2 × $900 × 12 = $21,600. NOI = $21,600 − $8,400 = $13,200.
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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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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