Real Estate Math
A New Mexico commercial property is valued at $1.2 million using an 8% cap rate. If the cap rate increases to 10%, what is the new estimated value?
A$960,000✓ Correct
B$1,200,000
C$1,500,000
D$800,000
Explanation
First, find NOI: Value = NOI / Cap Rate → $1,200,000 = NOI / 0.08 → NOI = $96,000.
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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.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Math Concepts
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