Question

Monica Geller wants to purchase an industrial building. She has identified one with NOI of $1,650,000. She thinks she can purchase it at a 5% cap rate. What price would she pay

Answer 1

$33,000,000

Step-by-step explanation:

In real estate, NOI refers to net operating income and it represents how much money a landlord can expect to earn from a real estate investment. It generally applies to rental income.

Since Monica's cap rate is 5%, then she should be willing to pay up to $1,650,000 / 5% = $33,000,000.

The higher the cap rate, the more an investor earns on a real estate investment, but it also represents a higher risk. It is similar to the rate of return of other types of investments.