Real Estate Math
A Massachusetts investor requires a 9% return on a $1,350,000 property. What minimum annual NOI is needed to meet this requirement?
A$121,500✓ Correct
B$150,000
C$135,000
D$108,000
Explanation
Required NOI = Value × Cap Rate = $1,350,000 × 9% = $1,350,000 × 0.09 = $121,500.
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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.
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