Real Estate Math
A Minnesota commercial property generates $150,000 in annual NOI and the investor wants a 7.5% cap rate return. What should the investor pay for the property?
A$1,800,000
B$2,000,000✓ Correct
C$1,500,000
D$2,250,000
Explanation
Value = NOI / Cap Rate = $150,000 / 0.075 = $2,000,000. An investor willing to accept a 7.5% cap rate would pay $2,000,000 for a property generating $150,000 NOI. This is a direct application of the income capitalization formula used in Minnesota commercial real estate investment analysis.
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