Real Estate Math
A Virginia investor purchases a rental property for $300,000. Annual NOI is $24,000. The investor requires a 9% cap rate to invest. Is this property priced appropriately?
AYes — the property cap rate equals 9%
BNo — the cap rate is only 8%, below the required 9%✓ Correct
CYes — the cap rate is 10%
DNo — the cap rate is 12%, above the required 9%
Explanation
Cap rate = $24,000 ÷ $300,000 = 8%. Since the investor requires 9% and the property only yields 8%, it is not priced appropriately at $300,000. The investor would need a lower price or higher NOI.
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