What is the value of a property with an effective gross income of $30,000 and expenses of $12,000 if the expected rate of return is 12%?

To determine the value of the property, it's essential to first calculate the net operating income (NOI), which is derived by subtracting the total expenses from the effective gross income. In this case, the effective gross income of the property is $30,000, and the expenses are $12,000.

Calculating NOI: Net Operating Income = Effective Gross Income - Expenses

Net Operating Income = $30,000 - $12,000 = $18,000

Next, the value of the property can be determined using the expected rate of return, also known as the capitalization rate (cap rate). The formula to find the value based on NOI and cap rate is:

Value = Net Operating Income / Capitalization Rate

Plugging in the values we have: Value = $18,000 / 0.12

Calculating this gives us: Value = $150,000

This calculation illustrates that the proper valuation of the property, taking into account the effective gross income, expenses, and the expected return, results in a property value of $150,000. Thus, this answer reflects a fundamental understanding of real estate valuation concepts, such as NOI and capitalization rate, which are critical for assessing the investment potential of a property in