Real Estate Math
A Tennessee commercial property has effective gross income of $120,000 and operating expenses of $48,000. If a buyer requires a 9% cap rate, what should the buyer pay?
A$800,000✓ Correct
B$1,333,333
C$720,000
D$960,000
Explanation
NOI = $120,000 − $48,000 = $72,000. Value = NOI ÷ Cap rate = $72,000 ÷ 0.09 = $800,000. To solve this, multiply the relevant values: $120,000 and $48,000 at 9%.. The correct answer is $800,000.. This is a common calculation on the Tennessee real estate exam.
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