Question

Ned Stark wants to buy a building. The annual revenues are $350,000 and annual operating expenses...

Ned Stark wants to buy a building. The annual revenues are $350,000 and annual operating expenses are $125,000. Ned decides that a fair and honorable price to pay would be $4,000,000.

What is the cap rate of this purchase?

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Homework Answers

Answer #1

Net Operating Income from Building = Annual Revenues - Annual Operating Expenses

= $350,000 - $125,000

= $225,000

Fair price of Building or Current Market price = $4,000,000

- Cap Rate = Net Operating Income/Current Market price of Building

= $225,000/$4,000,000

= 5.625%

So, the cap rate of this purchase is 5.625%

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