Which formula correctly calculates the capitalization rate (cap rate) for an income-producing property?
Correct Answer
C) NOI ÷ Value
Cap Rate = NOI ÷ Value (or purchase price). It expresses the rate of return an investor can expect from an income-producing property before financing. The formula can be rearranged to solve for any variable: Value = NOI ÷ Cap Rate, or NOI = Value × Cap Rate. A higher cap rate generally indicates greater risk or a lower purchase price relative to income.
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Related Topics & Key Terms
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Related Concepts
A transfer tax is a tax imposed on the transfer of ownership of real estate.
Reconciliation is the final step in the appraisal process where the appraiser analyzes the value indications from all applicable approaches and arrives at a single final opinion of value. It is not a simple average of the three values.
The comparable sales approach estimates a property's value by comparing it to similar properties that have recently sold in the same market area. It is the most widely used and reliable approach for appraising residential properties.
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- → External obsolescence in Oklahoma:
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