Superior Real Estate School Exam 2025 – 400 Free Practice Questions to Pass the Exam

To determine the capitalization rate, you start by finding the net operating income (NOI) and then divide that amount by the property value.

First, calculate the total monthly income generated by the four apartments. Each apartment rents for $470 per month, so the monthly rental income for all four apartments combined is:

$470 x 4 = $1,880

Next, to find the annual rental income, multiply the monthly income by 12:

$1,880 x 12 = $22,560

Now, to determine the net operating income, apply the percentage of net operating income given in the question. The building has a net operating income of 65% of the total annual rental income. Therefore, calculate the NOI as follows:

NOI = Total Annual Rental Income x Net Operating Income Percentage

NOI = $22,560 x 0.65 = $14,664

The capitalization rate is calculated using the formula:

Capitalization Rate = Net Operating Income / Property Value

Substituting in the values we have:

Capitalization Rate = $14,664 / $215,000

Calculating this gives:

Capitalization Rate = 0.0683 or 6.83%

When rounded to one decimal place