Real Estate Math
A Florida investor purchases a rental property for $200,000. The property generates $18,000 annually in gross rent. After expenses of $6,000, the NOI is $12,000. The investor's overall capitalization rate is:
A6%✓ Correct
B9%
C3%
D12%
Explanation
Cap Rate = NOI ÷ Purchase Price = $12,000 ÷ $200,000 = 0.06 = 6%. The cap rate measures the annual return on investment based on NOI, ignoring financing. It is used to compare investment properties and convert income into value.
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