Texas Property Tax Consultant Practice Exam 2025 - Free Property Tax Consultant Practice Questions and Study Guide

To determine the capitalization rate, you divide the net operating income (NOI) by the sales price of the property. The formula for capitalization rate is expressed as:

Capitalization Rate = Net Operating Income / Sales Price

In this case, the net operating income is $35,100 and the sales price is $368,500.

Using the formula, you calculate:

Capitalization Rate = $35,100 / $368,500 = 0.0953.

Upon rounding, this value rounds to approximately 0.0953, which corresponds with the first choice.

This calculation is fundamental in real estate as the capitalization rate provides an essential measure for assessing the profitability and return on investment for income-producing properties. A higher capitalization rate suggests a potentially higher return on investment, while a lower rate indicates a lower return relative to the property purchase price. Thus, arriving at the correct capitalization rate is crucial for investors evaluating real estate opportunities.