Real Estate Math
A NJ property's NOI is $55,000. Its current value is $700,000. If the market demands a 7.5% cap rate, is the property priced correctly?
ANo, it is overpriced; at 7.5% cap rate the value is $733,333
BNo, it is overpriced; at 7.5% cap rate the value is only $733,333—wait, $55,000 ÷ 0.075 = $733,333 which is HIGHER than $700,000, so the property is actually UNDERPRICED✓ Correct
CYes, priced exactly at market
DNo, value should be $550,000
Explanation
Value at 7.5% cap rate = $55,000 ÷ 0.
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