Capitalization Rate [2101]

A property generates net operating income of $50,000 with annual debt service is $43,264. If the mortgage constant is 0.1565 and the loan to value ratio is 76%, what is the rate of capitalization? [2101]

Mortgage Constant = Debt Service / Mortgage (see formula page)

0.1565 = $43,264 / Mortgage therefore Mortgage = $43,264 / 0.1565 = $276,447

Value x 0.76 = $276,447 therefore Value = $363,746

Cap Rate = $50,000 / $363,746 = 13.7%