California Real Estate Practice Exam

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An investment property's estimated value based on a net operating income of $47,700 per year and a market rate of return of 9% is:

$530,000
$520,000
$540,000
$500,000

The correct answer is: $530,000

To determine the estimated value of an investment property based on its net operating income (NOI) and market rate of return (also known as capitalization rate), you can use the formula: Value = NOI / Capitalization Rate In this case, the net operating income is $47,700, and the market rate of return is 9%, which can be expressed as 0.09 in decimal form. Using the formula, we can calculate: Value = $47,700 / 0.09 Value = $530,000 This calculation results in an estimated property value of $530,000, making this amount the correct answer. This method of valuing an investment property emphasizes the relationship between income generation and the expected return, which is foundational in real estate investment analysis. By understanding how to apply this formula, one can effectively evaluate investment opportunities based on their income potential and associated risks.