Real Estate Math
A Missouri duplex has 2 units renting at $950 each. Vacancy is 5%, operating expenses are $8,500/year. Using a 7% cap rate, what is the value?
A$278,500
B$188,000✓ Correct
C$270,000
D$285,000
Explanation
Annual gross rent = 2 × $950 × 12 = $22,800. Vacancy = $22,800 × 5% = $1,140. EGI = $21,660. NOI = $21,660 − $8,500 = $13,160. Value = $13,160 ÷ 0.07 = $188,000.07 = $188,000. Closest listed is $258,929. Let me redo: 2 × $950 = $1,900/mo × 12 = $22,800. Vacancy = $1,140. EGI = $21,660. NOI = $21,660 − $8,500 = $13,160. Value = $13,160 ÷ 0.07 = $188,000.
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