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Rick is looking to purchase a rental house at below market value, so he receives...

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Accounting

Rick is looking to purchase a rental house at below market value, so he receives advice from his real estate broker, Dopey. Dopey explains it is smart to obtain a property between a 3 - 6 percent capitalization rate. Dopey suggested that Rick research the existing neighboring properties and determine the average price. Rick got three appraisals for neighboring properties: $500,000, $450,000, and $375,000. The home he wants to purchase has net operating income of $27,500 with a cap rate of 5.0%. Would this be a good deal for Rick? If so, why. If not why.

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