Real Estate Math
A Honolulu commercial property has an asking cap rate of 5.25% and lists for $4,200,000. What is the NOI?
AA. $210,000
BB. $220,500✓ Correct
CC. $225,000
DD. $195,000
Explanation
NOI = Value × Cap Rate = $4,200,000 × 0.0525 = $220,500.
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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.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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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