If a shopping center sold for $10,000,000 with a Net Operating Income of $875,000, what is the Cap Rate?

If a shopping center sold for $10,000,000 with a Net Operating Income of $875,000, what is the Cap Rate?

• A. 8.75%
• B. 12.5%
• C. 10%
• D. 7.5%

Answer: (A)

To determine the Capitalization Rate (Cap Rate) for the shopping center, the formula is used as follows: Cap Rate = Net Operating Income (NOI) / Purchase Price In this scenario, the shopping center has a Net Operating Income (NOI) of $875,000 and was sold for $10,000,000. Plugging these values into the formula gives: Cap Rate = $875,000 / $10,000,000 Cap Rate = 0.0875 or 8.75% This means that the Cap Rate, which is a commonly used metric in real estate to evaluate the profitability of an investment property, is 8.75%. A higher Cap Rate would typically indicate a higher risk and potential return on investment, while a lower Cap Rate may suggest a more stable but lower return. Therefore, the answer of 8.75% accurately calculates the Cap Rate using the provided figures, making it the correct choice.

To determine the Capitalization Rate (Cap Rate) for the shopping center, the formula is used as follows:

Cap Rate = Net Operating Income (NOI) / Purchase Price

In this scenario, the shopping center has a Net Operating Income (NOI) of $875,000 and was sold for $10,000,000. Plugging these values into the formula gives:

Cap Rate = $875,000 / $10,000,000

Cap Rate = 0.0875 or 8.75%

This means that the Cap Rate, which is a commonly used metric in real estate to evaluate the profitability of an investment property, is 8.75%. A higher Cap Rate would typically indicate a higher risk and potential return on investment, while a lower Cap Rate may suggest a more stable but lower return.

Therefore, the answer of 8.75% accurately calculates the Cap Rate using the provided figures, making it the correct choice.