Real Estate Math
A Missouri investor pays $650,000 for an apartment complex. Annual NOI is $52,000. How does this cap rate compare to a 9% market cap rate?
AThe property is overpriced (cap rate below market)✓ Correct
BThe property is appropriately priced
CThe property is underpriced (cap rate above market)
DCap rate analysis doesn't apply to apartments
Explanation
Actual cap rate = $52,000 / $650,000 = 8%. Since the market cap rate is 9%, the property's 8% cap rate indicates it's priced higher relative to its income than the market (lower cap rate = higher price relative to income = potentially overpriced).
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