Real Estate Math
An Oregon investor is evaluating a property with NOI of $90,000. Comparable cap rates in the market are 6.5%. What is the indicated value?
A$1,200,000
B$1,384,615✓ Correct
C$1,250,000
D$1,500,000
Explanation
Value = NOI ÷ Cap Rate = $90,000 ÷ 0.065 = $1,384,615. This is the income capitalization approach. If cap rates rise (investors demand higher returns), property values fall for the same NOI. If cap rates fall (investors accept lower returns, often in low-interest-rate environments), the same NOI supports a higher value.
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