Real Estate Math
A West Virginia investor purchases a rental property for $150,000. The annual gross rent is $18,000 and annual expenses total $6,000. What is the capitalization rate (cap rate)?
A6%
B8%✓ Correct
C10%
D12%
Explanation
NOI = $18,000 - $6,000 = $12,000. Cap rate = NOI ÷ Purchase price = $12,000 ÷ $150,000 = 8%. Using the values given ($150,000, $18,000), apply the appropriate formula.. The correct answer is 8%.. This is a common calculation on the West Virginia real estate exam.
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