The net operating income is requested when the property is appraised for $420,000 and the capitalization rate is 6%. What is the NOI?

The net operating income is requested when the property is appraised for $420,000 and the capitalization rate is 6%. What is the NOI?

• A. $25,200
• B. $21,000
• C. $28,000
• D. $26,000

Answer: (A)

Cap rate ties NOI to value: Value equals NOI divided by cap rate, so NOI equals Value times cap rate. With a property value of 420,000 and a cap rate of 6% (0.06), NOI = 420,000 × 0.06 = 25,200. So the net operating income is $25,200. The other numbers would come from applying different rates to the same value (for example 5% gives 21,000, about 6.67% gives 28,000, or about 6.19% gives 26,000), which don’t match the given 6% rate.

Cap rate ties NOI to value: Value equals NOI divided by cap rate, so NOI equals Value times cap rate. With a property value of 420,000 and a cap rate of 6% (0.06), NOI = 420,000 × 0.06 = 25,200. So the net operating income is $25,200. The other numbers would come from applying different rates to the same value (for example 5% gives 21,000, about 6.67% gives 28,000, or about 6.19% gives 26,000), which don’t match the given 6% rate.