Property Valuation
A Minnesota buyer is purchasing a small strip mall and wants a cap rate analysis. The property has gross income of $120,000, vacancy allowance of $12,000, and operating expenses of $42,000. With a purchase price of $880,000, what is the cap rate?
A7.5%
B7.73%✓ Correct
C8.0%
D6.8%
Explanation
EGI = $120,000 - $12,000 = $108,000. NOI = $108,000 - $42,000 = $66,000. Cap rate = $66,000 / $880,000 = 0.075 = 7.5%.5%, which matches option A.075 = 7.5%. The correct answer is 7.5% (option A is correct).
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