PASS GEORGIA
REAL ESTATE EXAM PREPGEORGIA REAL ESTATE EXAM GLOSSARY
Capitalization rate, or cap rate, is the annual net operating income divided by the property's value or price.
Valuation and Market Analysis
Income valuation
Define, distinguish, apply, retrieve
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PASS GEORGIA
REAL ESTATE EXAM PREPGEORGIA REAL ESTATE EXAM
GLOSSARY TERM GUIDEBuild the complete exam definition
Learn the rule, separate it from the nearest distractor, then apply it to a Georgia fact pattern.
What does Capitalization rate mean?
Capitalization rate, or cap rate, is the annual net operating income divided by the property's value or price. It expresses the unlevered income return implied by those figures.
How do you separate the nearest exam answer?
Cap rate uses net operating income. Gross rent multiplier uses gross rent and does not subtract operating expenses.
What changes or stays the same in Georgia?
This is a national valuation calculation on the Georgia exam. Financing costs and income taxes are not operating expenses in the standard NOI used for cap rate.
A property producing $54,000 in annual NOI and valued at $675,000 has an 8 percent cap rate because $54,000 ÷ $675,000 = 0.08.
Using gross income, mortgage payments, or monthly NOI can make the arithmetic look correct while the setup is wrong.
PASS GEORGIA
REAL ESTATE EXAM PREPGEORGIA REAL ESTATE EXAM
GLOSSARY TERM GUIDERetrieve the rule under exam conditions
Answer before reading the explanation. Then explain why every distractor belongs to a different term.
A small office building collects $90,000 in annual rent. Operating expenses are $36,000, and annual mortgage payments are $30,000. The building is valued at $675,000. What is its cap rate?
- A
13.3 percent
- B
3.6 percent
- C
8 percent
- D
8.9 percent
Cap rate is net operating income divided by value. NOI is $90,000 minus $36,000 in operating expenses, or $54,000, and $54,000 divided by $675,000 equals 8 percent. Mortgage payments are financing costs, not operating expenses, so subtracting them to get 3.6 percent is the common setup error.
Mark each box only when you can perform the skill without looking.
I can define the term in one precise sentence.
I can separate it from the closest look-alike.
I can explain the Georgia rule or confirm that the national rule applies.
I can answer the practice check and explain every option.
PASS GEORGIA
REAL ESTATE EXAM PREPGEORGIA REAL ESTATE EXAM
GLOSSARY TERM GUIDEConnect the term to the wider exam
Use these relationships to move from isolated recall to a connected exam model.
Valuation and Market Analysis complete lesson
https://www.passgeorgiarealestate.com/math/capitalization-rate
Official exam administration and content-outline source.
https://test-takers.psiexams.com/api/content/bulletin/4672Congressionally authorized source for USPAP and appraisal standards.
https://appraisalfoundation.org/pages/uspap