Property Valuation
Capitalization rate (cap rate) is calculated by:
ADividing net operating income by the purchase price✓ Correct
BMultiplying gross rent by the property value
CSubtracting vacancies from gross potential income
DAdding all operating expenses and dividing by the number of units
Explanation
Cap Rate = Net Operating Income (NOI) / Property Value (or Purchase Price). A higher cap rate indicates a higher return on investment relative to the purchase price.
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