Question

An investor is looking at a four-plex that is priced at $500,000 and has a 7% cap rate. The investor told the sales associate to write up the offer using a 9% cap rate. To the nearest dollar, what is the investor willing to pay?

Answer 1

Answer:

$388,889

Explanation:

$500,000 X .07 = $350,000

NOI = rate X value.

Therefore NOI is divided by the desired Cap rate

$350,000/.09 =$388,889

Therefore the investor is willing to pay $388,889

Answer 2

Answer:

$388,889

Explanation:

Net operating income (NOI)= value priced × priced cap rate

=$500,000× 7%

=$500,000×0.07

=$35,000

Current capital value= NOI/capitalization rate

=$35,000/9%

=$35,000/0.09

=$388,888.888888

To the nearest dollar

=$388,889