If a building is priced at 1 million and generates 100K in net revenue, what is its cap rate?

To find the capitalization rate (cap rate), you can use the formula:

[ \text{Cap Rate} = \frac{\text{Net Operating Income (NOI)}}{\text{Property Price}} ]

In this case, the net revenue (which is the NOI) is $100,000, and the property price is $1,000,000. Plugging these values into the formula gives:

[ \text{Cap Rate} = \frac{100,000}{1,000,000} = 0.10 \text{ or } 10% ]

This means that the cap rate for the building is 10%. The cap rate is a crucial metric in real estate that provides insight into the return on investment for a property by comparing the net income produced by the property to its purchase price. It helps investors to evaluate the profitability and potential return of their investments. A cap rate of 10% indicates that for every dollar invested, the property is expected to generate ten cents in net income annually.

The other percentages do not correctly represent the return derived from the given income and property value, as they would imply a much higher net income than what the building generates. Thus, 10% is the