An investor purchases a rental property for $240,000. Annual gross rental income is $28,800 and annual operating expenses are $10,800. What is the capitalization rate?
Correct Answer
C) 7.5%
NOI = Gross income - Operating expenses = $28,800 - $10,800 = $18,000. Cap rate = NOI / Purchase price = $18,000 / $240,000 = 0.075 = 7.5%.
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Related Topics & Key Terms
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Related Concepts
Loan qualification math involves calculating the debt-to-income ratios that lenders use to determine whether a borrower qualifies for a mortgage. The two primary ratios are the front-end (housing expense) ratio and the back-end (total debt) ratio.
Monthly interest is the portion of the total annual interest that is paid or accrued each month.
Net operating income (NOI) is the annual income generated by an income-producing property after deducting operating expenses, but before deducting mortgage payments, income taxes, and depreciation.
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