A commercial property has an annual NOI of $120,000 and was purchased for $1,500,000. What is the capitalization rate?
Correct Answer
D) 8.0%
The capitalization rate is calculated as NOI divided by purchase price: $120,000 ÷ $1,500,000 = 0.08 or 8.0%. Cap rates are used to evaluate the return on investment for commercial properties.
Why This Is the Correct Answer
Option D (8.0%) is correct because it properly applies the capitalization rate formula. Cap Rate = NOI ÷ Purchase Price = $120,000 ÷ $1,500,000 = 0.08 = 8.0%. This calculation follows standard commercial real estate valuation principles recognized across Canadian jurisdictions. The cap rate represents the annual return an investor would receive if the property were purchased with cash, making it a critical metric for investment decision-making and property comparison.
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A commercial property has a Net Operating Income (NOI) of $120,000 and was purchased for $1,500,000. What is the capitalization rate?
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