What is the investor's rate of return for a property purchased for $1,170,000, considering an effective gross income of $146,080?

To determine the investor's rate of return, also known as the capitalization rate or cap rate, you can use the following formula:

Rate of Return = Effective Gross Income / Purchase Price

Given the effective gross income of $146,080 and the purchase price of $1,170,000, you would calculate the rate of return as follows:

Rate of Return = $146,080 / $1,170,000

When you perform this division, you'll find that:

Rate of Return = 0.1248 or 12.48%

This means that the investor's rate of return on the property is indeed 12.48%, which represents the income generated by the investment relative to its cost. This calculation reflects the property's ability to produce income as a proportion of its purchase price, making it a critical metric in real estate investment analysis.

Understanding the cap rate is essential for investors, as it helps them assess the potential profitability of the property and compare it with other investment opportunities.