Real Estate Math
A Hawaii property's gross income is $72,000/year and the operating expense ratio is 35%. What is the cap rate if the property value is $1,000,000?
AA. 4.68%✓ Correct
BB. 7.2%
CC. 4.5%
DD. 5.5%
Explanation
NOI = Gross Income × (1 - Expense Ratio) = $72,000 × 0.65 = $46,800. Cap Rate = NOI / Value = $46,800 / $1,000,000 = 4.68%.35 = $25,200; NOI = $72,000 - $25,200 = $46,800; Cap Rate = $46,800 / $1,000,000 = 4.68%.
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