A 5-unit apartment property rents for $820 per unit per month. Expenses and vacancies average $800 per month. The asking price is $660,000. What is the capitalization rate?

Question

Quizplus · Accepted Answer

The capitalization rate is calculated by dividing the net operating income (NOI) by the property's value. The NOI is the total rental income minus expenses and vacancies. Here, the monthly rental income is 5 units * $820 = $4,100. Subtracting the $800 expenses gives an NOI of $3,300 per month, or $39,600 annually. The capitalization rate is $39,600 / $660,000 = 0.06, or 6%.

A 5-Unit Apartment Property Rents for $820 Per Unit Per