Real Estate Math
A commercial property generates $120,000 annual NOI and was purchased for $1,500,000. What is the cap rate?
A6%
B8%✓ Correct
C10%
D12%
Explanation
Cap Rate = NOI / Purchase Price = $120,000 / $1,500,000 = 0.08 = 8%. The capitalization rate is used to estimate value in the income approach and reflects the expected return on investment.
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