Real Estate Math
A NJ property's net operating income is $60,000. A buyer wants an 8% return on their investment. What is the maximum price the buyer should pay (using direct capitalization)?
A$480,000
B$750,000✓ Correct
C$600,000
D$680,000
Explanation
Value = NOI ÷ Cap Rate = $60,000 ÷ 0.08 = $750,000. If the buyer requires an 8% cap rate return, paying more than $750,000 would yield a cap rate below 8%, reducing the return below the buyer's threshold.
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