You are considering the purchase of a commercial building that is nearby a comparable property that recently sold for $275,000. What is the cap rate for the property you are considering if the comparable property has an NOI of $35,000?
A)10.94%
B)12.73%
C)13.49%
D)16.81%
E)19.71%

Question

Quizplus · Accepted Answer

To calculate the cap rate, we divide the NOI by the sale price.

Cap rate = NOI / sale price

For the comparable property: 
Cap rate = $35,000 / $275,000 = 0.127 (or 12.7%)

We don't know the sale price of the property we are considering, so we can't calculate the cap rate directly.

However, we can use the cap rate of the comparable property as a benchmark. Let's say we want to earn the same cap rate as the comparable property, 12.7%. We can rearrange the cap rate formula to solve for the sale price:

Sale price = NOI / cap rate

Sale price = $35,000 / 0.127 = $275,591

So if we want to earn a 12.7% cap rate on the property we are considering, it would need to have an NOI of $35,000 and a sale price of $275,591.

Of course, we don't know if that's realistic or not - the actual cap rate for the property we are considering may be higher or lower depending on various factors. But B is the closest answer among the given choices.

You Are Considering the Purchase of a Commercial Building That