Question

8. A property has Net Operating Income (NOI) of $130,000 and is offered for sale at $1,950,000. What Capitalization Rate did the seller use to price the property? Capitalization Rate: 130000/1950000=0.06667=6.67%

9. You have a Required Return of 7.66%. What would you offer for the property in the previous question?

Answer 1

SOLUTION :

The values provided in the question are as follows:

Net operating Income = $ 130,000

Current Market value of assets i.e offered for sale = $ 1,950,000

( Capitalization Rate ) the seller use to price the property=?

THE FORMULA IS TO CALCULATE CAPITALIZATION RATE :

Capitalization Rate = Net operating Income / Current Market value of assets

Using the values provided in the question,

Capitalization Rate = $130,000/ $ 1,950,000

Capitalization Rate = 0.0667 or 6.67 %

8- Capitalization Rate = 0.0667 or 6.67 %

9- Calculation of offer for the prorety if required rate of return is 7.66 % or 0.0766 i.e capitalization rate

Capitalization Rate = Net operating Income / Current Market value of assets i.e offered for the property

Using the values provided in the question,

capitalization rate =0.0766

Net operating Income = $ 130,000

Current Market value of assets i.e offered for the property = Net operating Income / Capitalization Rate

Current Market value of assets i.e offered for the property = $130,000/0.0766

Current Market value of assets i.e offered for the property = $ 1,697,127.94