Real Estate Math
A property generates $3,500 per month in rent. The annual operating expenses are $15,000. The owner's initial investment was $500,000. What is the return on investment (ROI) before debt service?
A5.4%
B6.0%✓ Correct
C7.2%
D8.4%
Explanation
Annual rent: $3,500 × 12 = $42,000. NOI: $42,000 − $15,000 = $27,000.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
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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