Tennessee Realtor State Practice Exam

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Prepare for the Tennessee Realtor State Exam with questions and explanations designed to help you succeed. Master the principles and regulations of real estate in Tennessee. Ace your exam with confidence!

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A property generates $30,000 in net operating income and has a 15% cap rate. What is its value?

$150,000
$200,000
$250,000
$300,000

The correct answer is: $200,000

To determine the value of a property based on its net operating income (NOI) and capitalization rate (cap rate), you can use the formula: **Value = Net Operating Income / Cap Rate** In this scenario, the property generates a net operating income of $30,000, and the capitalization rate is 15%, which can be expressed as a decimal for calculations (0.15). Applying the formula: Value = $30,000 / 0.15 By performing the calculation: Value = $30,000 ÷ 0.15 = $200,000 Thus, the value of the property is $200,000. This method is essential for real estate professionals as it provides a straightforward way to assess the worth of an investment property based on its income-generating potential relative to the cap rate, which reflects the expected rate of return on the investment.