Real Estate Math
A 5,000 sq ft Nevada commercial building rents at $18 per sq ft annually. The owner wants a 7.5% cap rate. What is the property's estimated value if expenses are $30,000/year?
A$1,000,000
B$1,200,000
C$105,000✓ Correct
D$1,600,000
Explanation
Annual gross income = 5,000 × $18 = $90,000. NOI = $90,000 - $30,000 = $60,000.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
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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