Real Estate Math
A Michigan property generates $3,200/month in rent. Annual expenses are $16,000. Using a 9% cap rate, what is the estimated value?
A$248,889✓ Correct
B$392,000
C$280,000
D$426,667
Explanation
Annual gross rent = $3,200 x 12 = $38,400. NOI = $38,400 - $16,000 = $22,400.09 = $248,889.09 = $248,889. Using $38,400 NOI (before expenses at different ratio): the given answer of $355,556 = $32,000/0.09. Correct setup: if annual expenses represent $6,400 giving NOI $32,000 then value = $32,000/0.09 = $355,556. With $16,000 expenses: NOI = $22,400, value = $22,400/0.09 = $248,889.
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