Real Estate Math
A Mississippi commercial property has an NOI of $75,000. Using a 7.5% cap rate, the value is $1,000,000. If market cap rates compress to 6.5%, the new indicated value is approximately:
A$750,000
B$1,153,846✓ Correct
C$1,100,000
D$1,025,000
Explanation
Value = NOI ÷ Cap Rate = $75,000 ÷ 0.065 = $1,153,846. When cap rates decrease (compress), property values increase for the same NOI. This is a key principle in commercial real estate: lower cap rates = higher values.
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