What is the value of a property that generates a net operating income of $36,000 with a cap rate of 4.5%?

What is the value of a property that generates a net operating income of $36,000 with a cap rate of 4.5%?

• A. $8,000
• B. $80,000
• C. $162,000
• D. $800,000

Answer: (D)

To determine the value of a property using the net operating income (NOI) and the capitalization rate (cap rate), the formula used is: Value = NOI / Cap Rate In this scenario, the property generates a net operating income of $36,000, and the cap rate is given as 4.5%. To express the cap rate as a decimal, you divide it by 100, resulting in 0.045. Using the formula: Value = $36,000 / 0.045 When you perform the division, the calculation yields: Value = $800,000 This result signifies that, based on the net operating income and the specified capitalization rate, the property is valued at $800,000. This method is widely used in real estate to assess property value, where the cap rate signifies the return expected on an investment. A lower cap rate generally indicates higher property values, as it reflects lower perceived risk and potentially higher quality of the income stream generated by the property.

To determine the value of a property using the net operating income (NOI) and the capitalization rate (cap rate), the formula used is:

Value = NOI / Cap Rate

In this scenario, the property generates a net operating income of $36,000, and the cap rate is given as 4.5%. To express the cap rate as a decimal, you divide it by 100, resulting in 0.045.

Using the formula:

Value = $36,000 / 0.045

When you perform the division, the calculation yields:

Value = $800,000

This result signifies that, based on the net operating income and the specified capitalization rate, the property is valued at $800,000. This method is widely used in real estate to assess property value, where the cap rate signifies the return expected on an investment. A lower cap rate generally indicates higher property values, as it reflects lower perceived risk and potentially higher quality of the income stream generated by the property.