Real Estate Math
A South Dakota commercial property generates potential gross income of $120,000, has a 4% vacancy loss, and operating expenses of $42,000. At a 7.5% cap rate, what is the value?
A$944,000
B$968,000✓ Correct
C$1,040,000
D$1,000,000
Explanation
Vacancy loss: $120,000 × 4% = $4,800. EGI: $120,000 - $4,800 = $115,200. NOI: $115,200 - $42,000 = $73,200. Value: $73,200 ÷ 0.075 = $976,000. Closest option: $968,000 or $944,000. Exact: $73,200 ÷ 0.075 = $976,000.
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