Skip to content
# An apartment building produces an annual net operating income (NOI) of $24,000. A buyer seeks an annual rate of return of 12%. What price does the buyer pay for the property?

Question:

A
$200,000.

Explaination

The capitalization method requires knowing the net operating income (NOI) and the appropriate cap rate. First, place the two numbers provided in the question into the cap rate formula.

$24,000 (NOI) = 12% (cap rate) x P (price)

Next, divide the NOI by the cap rate.

$24,000 / 0.12 = P

P = $200,000

Thus, the buyer is to pay no more than $200,000 to yield a 12% rate of return.

Take more free practice tests for otherReal Estate topics with our real estate practice exam now!