Real Estate Math
An Iowa investor buys a 4-unit apartment building for $320,000. Annual gross rent is $36,000 and expenses are 40% of gross rent. What is the cap rate?
A5.4%
B6.75%✓ Correct
C7.2%
D8.1%
Explanation
NOI = $36,000 × (1 − 0.40) = $36,000 × 0.60 = $21,600. Cap rate = $21,600 ÷ $320,000 = 0.0675 = 6.75%.
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