If a property's annual net income is 24,000 and it is valued at 300,000, what is its capitalization rate?

If a property's annual net income is 24,000 and it is valued at 300,000, what is its capitalization rate?

• A. 7%
• B. 8%
• C. 9%
• D. 10%

Answer: (B)

Cap rate shows the annual return on an investment based on income relative to price. It’s found by dividing the annual net operating income by the property’s value. Here, 24,000 divided by 300,000 equals 0.08, which is 8%. So the capitalization rate is 8%. This quick metric lets you compare properties—the higher the cap rate, the more income you’re getting per dollar of value. Keep in mind it assumes a cash purchase and doesn’t account for financing, taxes, or other factors beyond NOI.

Cap rate shows the annual return on an investment based on income relative to price. It’s found by dividing the annual net operating income by the property’s value. Here, 24,000 divided by 300,000 equals 0.08, which is 8%. So the capitalization rate is 8%. This quick metric lets you compare properties—the higher the cap rate, the more income you’re getting per dollar of value. Keep in mind it assumes a cash purchase and doesn’t account for financing, taxes, or other factors beyond NOI.