Real Estate Math
A Nebraska investor purchases a property for $575,000 all cash. The annual NOI is $46,000. What is the overall cap rate, and if cap rates in the market improve to 7.5%, what would be the property's new value?
ACap rate: 8%; New value at 7.5%: $613,333✓ Correct
BCap rate: 8%; New value at 7.5%: $598,000
CCap rate: 7%; New value at 7.5%: $600,000
DCap rate: 8.5%; New value at 7.5%: $600,000
Explanation
Cap rate = $46,000 ÷ $575,000 = 8%. If cap rates compress to 7.5%: Value = $46,000 ÷ 0.075 = $613,333.
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