Real Estate Math
A Washington property's annual NOI is $62,400. A comparable property with the same NOI just sold at a 7.8% cap rate. What is the indicated value of the subject property?
A$770,000
B$780,000
C$800,000✓ Correct
D$820,000
Explanation
Value = NOI ÷ Cap Rate = $62,400 ÷ 0.078 = $800,000.
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Key Terms to Know
Capitalization Rate (Cap Rate)
A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Net Operating Income (NOI)The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
AmortizationThe gradual repayment of a loan through scheduled periodic payments that cover both principal and interest.
Math Concepts
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