Four highly similar and competitive income-producing properties located in close proximity to the subject property have sold this month. All four offer essentially the same amenities and services as the subject property. The sale prices and estimated first-year NOI for each of the comparable properties are as follows: Comparable Sale Price NOI1 A $1,450,000 $155,000 B $1,100,000 $135,400 C $1,250,000 $143,400 D $1,500,000 $169,000 Using the information provided, calculate the overall capitalization rate by direct market extraction assuming each property is equally comparable to the subject.

Answer: 11.43%

Explanation:

Capitalization rate is a real estate valuation measure that is used to compare and contrast different real estate investments.

The capitalization rate is calculated as shown below:

Capitalization rate of comparable A:

= Net operating income (NOI) / Sales price

= $ 155,000 / $ 1,450,000

= 0.1069

Capitalization rate of comparable B:

= Net operating income (NOI) / Sales price

= $ 135,400 / $ 1,100,000

= 0.1231

Capitalization rate of comparable C:

= Net operating income (NOI) / Sales price

= $ 143,400 / $ 1,250,000

= 0.1147

Capitalization rate of comparable D:

= Net operating income (NOI) / Sales price

= $ 169,000 / $ 1,500,000

= 0.1127

The overall capitalization rate will the be the average of all the 4 rates that we have calculated. This will be:

= (0.1069 + 0.1231 + 0.1147 + 0.1127) / 4

= 0.4574/4

= 0.1143 or 11.43%