Capitalization Rate [0501]

Home Previous Next

An office building recently sold for $2,000,000. The Gross potential income is $400,000, the vacancy factor is 8%, the expenses are 45% of effective gross income. The annual mortgage payment is $165,000 and the equity is $500,000. What is the capitalization rate?

Capitalization Rate = NOI ÷ Value (Sales Price)

Potential Gross Income (PGI)	$400,000
Less: Allowances @8%	$32,000
Other income	$0
Effective Gross Income (EGI)	$368,000
Less: Operating Expenses (OE) @45%	$165,600
Net Operating Income (NOI)	$202,400

Sale Price	$2,000,000
Cap Rate	10.12%

The annual mortgage payment and the equity are superfluous to this problem.

Georgia Appraiser Home Page | Reload