A commercial property generates $120,000 in annual gross rental income and has operating expenses of $35,000. If the property sells for $850,000, what is the CAP rate?
Correct Answer
A) 10.0%
First calculate NOI: $120,000 - $35,000 = $85,000. Then divide NOI by property value: $85,000 ÷ $850,000 = 0.10 or 10.0%. The CAP rate formula is NOI divided by property value or purchase price.
Why This Is the Correct Answer
Option A (10.0%) is correct because it properly applies the CAP rate formula. First, calculate NOI: $120,000 gross income minus $35,000 operating expenses equals $85,000. Then divide NOI by property value: $85,000 ÷ $850,000 = 0.10 or 10.0%. This follows standard commercial real estate valuation principles recognized across Canadian jurisdictions and is essential knowledge for licensees dealing with commercial investment properties under provincial real estate legislation.
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A commercial building is being analyzed for purchase with the following data: Annual rental income $240,000, vacancy rate 8%, operating expenses $45,000, debt service $85,000. What is the property's Net Operating Income (NOI)?
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A commercial property generates $120,000 in annual rental income and has operating expenses of $35,000. If the capitalization rate is 8%, what is the estimated property value?