Real Estate Math
A Maine investor buys a duplex for $280,000 with a 20% down payment. Annual NOI is $19,600. Cash-on-cash return based on equity invested is:
A5.5%
B7%
C8.75%✓ Correct
D10%
Explanation
Equity invested = $280,000 × 20% = $56,000. Cash-on-cash return = $19,600 ÷ $56,000 = 0.35 = 35%. Wait, that's not right. Cash-on-cash should use cash flow after debt service, not NOI. But if using NOI as a proxy for cash flow: $19,600/$56,000 = 35%. If cap rate: $19,600/$280,000 = 7%. The intended answer is 7% (cap rate).
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