If a property sold for $215,000 and has an annual Net Income of $25,000, what is the Capitalization Rate?

If a property sold for $215,000 and has an annual Net Income of $25,000, what is the Capitalization Rate?

• A. 10.5%
• B. 11.63%
• C. 12.25%
• D. 13.75%

Answer: (B)

To determine the Capitalization Rate (Cap Rate), you can use the formula: Cap Rate = Net Operating Income (NOI) / Property Value In this case, the Net Income is given as $25,000, and the property sold for $215,000. Plugging these values into the formula yields: Cap Rate = $25,000 / $215,000 When you perform the division, you get: Cap Rate = 0.11627906976744186 To convert this decimal into a percentage, you multiply by 100, resulting in approximately 11.63%. Thus, the calculated capitalization rate of 11.63% indicates the expected return on the investment based on the income it generates relative to its value. Understanding the capitalized rate is crucial for investors and appraisers, as it helps to evaluate the profitability of property investments and compare different options in the market.

To determine the Capitalization Rate (Cap Rate), you can use the formula:

Cap Rate = Net Operating Income (NOI) / Property Value

In this case, the Net Income is given as $25,000, and the property sold for $215,000. Plugging these values into the formula yields:

Cap Rate = $25,000 / $215,000

When you perform the division, you get:

Cap Rate = 0.11627906976744186

To convert this decimal into a percentage, you multiply by 100, resulting in approximately 11.63%.

Thus, the calculated capitalization rate of 11.63% indicates the expected return on the investment based on the income it generates relative to its value. Understanding the capitalized rate is crucial for investors and appraisers, as it helps to evaluate the profitability of property investments and compare different options in the market.