Tennessee Realtor State Practice Exam

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A property generates $30,000 in net operating income and has a 15% cap rate. What is its value?

$150,000
$200,000
$250,000
$300,000

The correct answer is: $200,000

To determine the value of a property based on its net operating income (NOI) and capitalization rate (cap rate), you can use the formula: **Value = Net Operating Income / Cap Rate** In this scenario, the property generates a net operating income of $30,000, and the capitalization rate is 15%, which can be expressed as a decimal for calculations (0.15). Applying the formula: Value = $30,000 / 0.15 By performing the calculation: Value = $30,000 ÷ 0.15 = $200,000 Thus, the value of the property is $200,000. This method is essential for real estate professionals as it provides a straightforward way to assess the worth of an investment property based on its income-generating potential relative to the cap rate, which reflects the expected rate of return on the investment.