Real Estate Math
A 20-unit Illinois apartment building has units renting at $1,100/month. Annual operating expenses are $110,000. At an 8% cap rate, what is the property's value?
A$1,375,000✓ Correct
B$1,485,000
C$1,650,000
D$1,540,000
Explanation
Annual PGI = 20 × $1,100 × 12 = $264,000. Assuming 100% occupancy for this problem, NOI = PGI - Expenses = $264,000 - $110,000 = $154,000.
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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.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
DepreciationA reduction in the value of an improvement (building) over time due to physical deterioration, functional obsolescence, or external factors.
Math Concepts
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