If NOI = 120,000 and Cap rate = 6%, what is the property value?

• A. 720,000
• B. 1,200,000
• C. 2,000,000
• D. 240,000

Answer: (C)

Cap rate tells you what percentage of a property's value the net income represents, and the relationship is Value = NOI divided by Cap rate. With NOI of 120,000 and a cap rate of 6% (0.06), the value is 120,000 ÷ 0.06 = 2,000,000. This also checks because 6% of 2,000,000 equals 120,000. Other options would require different cap rates: for example, 720,000 would correspond to a cap rate of about 16.7% (120,000/720,000), 1,200,000 to 10%, and 240,000 to 50%.