A commercial building has gross rental income of $240,000 annually and operating expenses of $85,000. If an investor wants a 9% cap rate, what should they pay for the property?
Correct Answer
D) $1,722,222
First find NOI: $240,000 − $85,000 = $155,000. Then Price = NOI ÷ Cap Rate = $155,000 ÷ 0.09 = $1,722,222. Paying that price gives the investor exactly a 9% return on NOI.
Why This Is the Correct Answer
$1,722,222 is correct. NOI = $240,000 − $85,000 = $155,000, and $155,000 ÷ 0.09 = $1,722,222. Check: 9% of $1,722,222 is about $155,000, the NOI the building actually produces.
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A commercial building has an NOI of $180,000 and a capitalization rate of 7.5%. What is the estimated market value of the property?
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