Real Estate Math
Using the IRV formula, if a Pennsylvania property's annual NOI is $54,000 and the market cap rate is 7.2%, what is the estimated property value?
A$388,800
B$750,000✓ Correct
C$648,000
D$540,000
Explanation
Value = Income divided by Rate = $54,000 divided by 0.072 = $750,000. The IRV formula (Income equals Rate times Value; rearranged as Value equals Income divided by Rate) is the foundation of the income capitalization approach. A 7.2% cap rate means the market expects to earn 7.2% annually on the property's value. At $750,000 with $54,000 NOI, the cap rate is exactly 7.2%, confirming the calculation. This formula is essential for valuing Pennsylvania investment properties of all types.
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