California Real Estate SalespersonProperty Valuation and Financial AnalysisMedium
An investor is evaluating a property valued at $500,000. Comparable properties in the market are selling at an 8% capitalization rate. Based on this cap rate, what is the property's estimated annual Net Operating Income (NOI)?
- A$50,000
- B$40,000
- C$45,000
- D$32,000
Show answer & explanationAnswer & explanation
Correct answer: B. $40,000
NOI = Value × Cap Rate = $500,000 × 0.08 = $40,000.
Why the other options are wrong
- A. Incorrect calculation, does not match 8% rate.
- C. Incorrect calculation.
- D. Incorrect calculation.
Solving for NOI (IRV)
Using the IRV formula, NOI can be solved by multiplying Value by the Rate: NOI = V × R.
- IRV: Income = Rate × Value
- Rearrange to solve for any unknown
- Rate expressed as decimal in calculations
Memory trick: I = R × V, just plug and solve