Real Estate Math
A North Dakota commercial property's net operating income is $78,000 per year. An investor purchases it for $975,000. What is the capitalization rate?
A7%
B8%✓ Correct
C9%
D10%
Explanation
Cap rate = NOI ÷ Value = $78,000 ÷ $975,000 = 0.08 = 8%. The capitalization rate expresses the relationship between a property's income and its value.
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