If an investment property yields a net operating income of $47,700 and is selling at a rate of return of 9%, what is the estimated value of the property?

To determine the estimated value of the investment property based on its net operating income (NOI) and the desired rate of return, you can use the formula for capitalization rate, which is expressed as:

Value = Net Operating Income / Rate of Return

In this scenario, the net operating income is given as $47,700 and the rate of return is 9%, or 0.09 when expressed as a decimal.

Plugging these numbers into the formula:

Value = $47,700 / 0.09

Calculating this gives:

Value = $530,000

Thus, the estimated value of the property is $530,000. This calculation illustrates how an investor can evaluate property value based on its income generation potential and the return they expect on their investment. The formula effectively shows that as the NOI increases or as the rate of return expectation decreases, the property value would correspondingly increase, and vice versa. Understanding this crucial relationship is foundational in real estate investment analysis.