Real Estate Math
Using the income approach, a property generates monthly rent of $3,200. Operating expenses are $14,400 annually and the capitalization rate is 7.5%. What is the estimated value?
A$387,200
B$421,333✓ Correct
C$440,000
D$512,000
Explanation
Annual gross income = $3,200 × 12 = $38,400. NOI = $38,400 − $14,400 = $24,000.
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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.
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.
Math Concepts
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