What is the total value of the property that has a net operating income of $49,500 if the capitalization rate is 10%?

To determine the total value of a property based on its net operating income (NOI) and capitalization rate (cap rate), the formula used is:

Property Value = Net Operating Income / Capitalization Rate

Using this formula, we take the net operating income of $49,500 and divide it by the capitalization rate of 10% (or 0.10 in decimal form).

Calculating this gives:

Property Value = $49,500 / 0.10 = $495,000

Thus, the total value of the property is $495,000. This value reflects how much an investor would be willing to pay for the property based on the expected return represented by the given cap rate. It shows the relationship between the income the property generates and the return an investor wants to receive.

In this case, understanding how to apply the cap rate to assess property value is critical. This method is commonly used in real estate to evaluate whether a property is a good investment compared to others available in the market, taking into account both income potential and risk.