An investor wants to buy a property that produces $72,000 annual NOI. The investor requires a minimum 8% cap rate. What is the maximum price the investor should pay?
Correct Answer
C) $900,000
Step 1: Maximum price = NOI ÷ Required cap rate = $72,000 ÷ 0.08 = $900,000.
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Related Topics & Key Terms
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Related Concepts
The capitalization rate (cap rate) is the ratio of a property's net operating income to its sale price, expressed as a percentage. It is used to estimate value and compare profitability of investment properties. Cap Rate = NOI / Value.
The capitalization rate (Cap Rate) is the rate of return on a real estate investment based on its expected income.
Commission splits refer to the division of the total real estate commission among the listing and selling brokerages, and then between each broker and their respective agents. Commission rates and splits are always negotiable.
More Real Estate Math Questions
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- → A borrower takes out an interest-only loan of $180,000 at an annual interest rate of 5%. What is the interest due for the first month?
- → Annual property taxes on a home are $2,400. The property closes on June 1. Using a 360-day banker's year and assuming taxes are paid in arrears, what is the amount the seller owes the buyer as a tax proration credit?
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- → A property sells for $220,000 and generates monthly gross rent of $1,600. What is the Gross Rent Multiplier (GRM)?
- → A property is purchased for $175,000 and appreciates at 4% per year compounded annually. What is the property's value after 2 years?
- → A property sells for $280,000. The listing broker charges a 3% commission and the buyer's broker charges 2.5%. The selling agent receives 65% of the buyer's broker commission. What does the selling agent earn?
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- → Annual property taxes are $3,600. The property closes on July 1 and taxes are paid in arrears. Using a 360-day year (30 days per month), what is the seller's proration debit (amount the seller owes the buyer at closing)?
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