Real Estate Math
A Mississippi property has 5 units renting for $925/month each. Annual operating expenses are $22,000 and vacancy is 6%. Using a 7% capitalization rate, the value indication is approximately:
A$30,170✓ Correct
B$650,000
C$712,857
D$521,429
Explanation
Gross income = 5 × $925 × 12 = $55,500. EGI = $55,500 × 0.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Math Concepts
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