Real Estate Math
An investor buys a 4-unit building. Each unit rents for $1,050/month. Annual expenses are $18,480. The property sells at an 8% cap rate. What is the value? (Assume 100% occupancy)
A$432,000
B$504,000
C$399,000✓ Correct
D$630,000
Explanation
Annual gross income = 4 × $1,050 × 12 = $50,400. NOI = $50,400 − $18,480 = $31,920. Value = $31,920 ÷ 0.08 = $399,000.08 = $399,000. The answer $562,500 needs NOI of $45,000. With annual gross of $50,400 and expenses needing to be $5,400: NOI = $45,000. $45,000/0.08 = $562,500. So expenses = $5,400 per year, not $18,480. Let me use correct formula: NOI = $50,400 − $18,480 = $31,920; Value = $31,920/0.08 = $399,000.
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