In November 2026, a comparable investment property sold for $756,000. Its potential gross income was $55,000, vacancy and collection loss was 5%, and the expense ratio was 43% of effective gross income. Rounded to the nearest whole percent, what overall cap rate does the sale indicate?
Correct Answer
D) 4%
Step 1: EGI = $55,000 × 0.95 = $52,250. Step 2: Expenses = $52,250 × 0.43 = $22,467.50. Step 3: NOI = $52,250 − $22,467.50 = $29,782.50. Step 4: Cap Rate = NOI ÷ Sale Price = $29,782.50 ÷ $756,000 = 0.0394, or about 4% when rounded.
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