Property Management
The capitalization rate (cap rate) used in income property management and valuation is calculated as:
AGross income divided by purchase price
BNet operating income divided by property value✓ Correct
CGross rent multiplier times annual rent
DMonthly rent times 12 divided by expenses
Explanation
Cap rate = Net Operating Income (NOI) / Property Value (or purchase price). It represents the return on investment before financing. A higher cap rate indicates a higher yield (and often higher risk), while a lower cap rate suggests lower yield (and typically lower risk or higher demand markets).
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