Real Estate Math
A Massachusetts building has 20 units renting at $2,500/month each, with a 5% vacancy and operating expenses of $270,000. At a 7% cap rate, what is the value?
A$3,214,286✓ Correct
B$3,000,000
C$4,000,000
D$2,857,143
Explanation
Annual gross rent = 20 × $2,500 × 12 = $600,000. EGI = $600,000 × 0.
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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.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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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