Real Estate Math
A Kansas property generates $36,000 net operating income. The cap rate is 7.2%. What is the estimated value?
A$450,000
B$476,190
C$500,000✓ Correct
D$520,000
Explanation
Value = NOI ÷ Cap Rate = $36,000 ÷ 0.072 = $500,000.
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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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Math Concepts
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