Answer:
0.16%
Step-by-step explanation:
Cost of rent per quarter = $4000
Cost of rent per year = 4×$4000
= $16,000
This means that the apartment building produces $12,000 per year in gross rents.
Yearly Expenses are as follows;
Maintenance expenses per year = 12×$350 = $4200
Property taxes per year = $1,750
Mortgage payment per year = 12×$650 = $7800
Total expenses per year = sum of all the yearly expenses
= $4200+$1,750+$7800
= $13750
Yearly revenue generated = Cost of rent per year - total yearly expenses
= $16,000-$13750
= $2250 (net operating income)
Capitalization rate is given as the ratio of the net operating income to the market value of the building.
Capitalization rate = net operating income/market value of building
Since the building with $83750, that will be its market value
Cap rate = $13750/$83750
Cap rate = 0.16%
