Property Valuation
The 'operating expense ratio' for a Massachusetts income property is calculated as:
AOperating Expenses ÷ NOI
BOperating Expenses ÷ Effective Gross Income✓ Correct
CNOI ÷ Operating Expenses
DCap Rate × Gross Income
Explanation
Operating Expense Ratio = Operating Expenses ÷ Effective Gross Income. It shows what percentage of income is consumed by operating expenses.
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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.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Math Concepts
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