Real Estate Math
A Kentucky apartment building has 10 units renting for $800/month. Annual operating expenses are $42,000. Using a 9% cap rate, what is the estimated value?
A$533,333
B$600,000✓ Correct
C$511,111
D$450,000
Explanation
Annual gross rents = 10 x $800 x 12 = $96,000. NOI = $96,000 minus $42,000 = $54,000. Value = NOI / Cap rate = $54,000 / 0.09 = $600,000.09 = $600,000. The correct answer is $600,000.
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