Final answer:
The capitalization rate (cap rate) for the property is calculated by dividing the Net Operating Income by the Purchase Price and then multiplying by 100% to express it as a percentage. After accounting for the vacancy rate and property management fees, the NOI used in the formula is $77,642.07. The cap rate is found to be 18.39%.
Step-by-step explanation:
To calculate the capitalization rate (cap rate) of the property, we use the formula:
Cap rate = (Net Operating Income / Purchase Price) x 100%
First, we need to determine the property's net operating income (NOI). Gross Annual Rents = $93,567. To account for the vacancy rate, we reduce this amount by 6.73%, which is:
Gross Annual Rents after vacancy = $93,567 - ($93,567 x 6.73%) = $87,238.279
Next, we subtract the property management fee, which is 11% of the gross rents after vacancy:
Property Management Fee = $87,238.279 x 11% = $9,596.21069
Subtract this fee from the adjusted Gross Annual Rents to get the NOI:
NOI = $87,238.279 - $9,596.21069 = $77,642.0683
We can now calculate the cap rate:
Cap rate = ($77,642.0683 / $422,182) x 100% = 18.39%
Therefore, the cap rate on this property is appropriately 18.39%.