A property has an NOI of $50,000 and a cap rate of 5%. What is the value?
Question & Answer
Review the question and all answer choices
$500,000
$500,000 would result from dividing $50,000 by a 10% cap rate (0.10), not a 5% cap rate — this is a common arithmetic error where test-takers use 10% instead of correctly converting 5% to its decimal equivalent of 0.05.
$750,000
$750,000 does not correspond to any standard application of the Value = NOI ÷ Cap Rate formula with the given numbers — it may result from an incorrect partial calculation or confusion with a different formula entirely.
$1,000,000
$250,000
$250,000 would result from multiplying $50,000 by the cap rate (50,000 × 0.05 = $2,500... actually $250,000 would come from $50,000 ÷ 0.20, a 20% cap rate) — this error reflects either inverting the formula or using an incorrect cap rate, both of which are classic mistakes under exam pressure.
Why is this correct?
The income capitalization formula is Value = NOI ÷ Cap Rate, so $50,000 ÷ 0.05 = $1,000,000. This formula is universally applied in commercial real estate valuation and is the foundational equation for the income approach, which is the preferred method for valuing income-producing properties like apartment buildings, office complexes, and retail centers.
Continue Learning
Explore this topic in different formats
More Real Estate Math Videos
Continue learning with related video lessons
A property sells for $325,000. If the commission is 6%, split equally between listing and selling brokers, what does each broker receive?
2:42 • 0 views
Property taxes on a Texas home are $6,000 per year. The sale closes on April 1. How much does the seller owe for prorated taxes?
2:56 • 0 views
A property is assessed at $250,000. The tax rate is $2.50 per $100. What is the annual tax?
2:50 • 0 views
Annual property taxes are $4,380. The property closes on March 15. If the seller has NOT paid taxes for the current year, how much does the seller owe at closing? (Use 365 days)
3:08 • 0 views
A house sells for $2,500,000. The commission check to the broker is $137,500. What percentage did the broker receive?
2:38 • 0 views
Ready to Ace Your Real Estate Exam?
Access 2,000+ free video lessons covering all 11 exam topics.