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John Williams wants to purchase an apartment complex. The complex consists of 75 units each renting for $700 per month. The estimated vacancy and collection loss rate is 7%. The insurance for the building is $40,000 annually and taxes are $22,000 annually. Utilities are $18,000 and the maintenance expense is $29,000.

Assume a market cap rate of 11%. Recent sales of nearby apartment complexes have resulted in the following information.

Characteristics Units Slope Coefficient in $ per Unit
Proximity to downtown Miles           -350,000
Proximity to
public transportation
Blocks            -500
Building size Units            +75,000

Williams' proposed apartment complex is 4 miles away from downtown and 6 blocks away from the nearest public transportation.

What is the net operating income (NOI) for Williams' proposed apartment complex?

A)
$498,900.
B)
$476,900.
C)
$436,153.


NOI = (75)(700)(12)(0.93) – $40,000 ? $22,000 ? $18,000 ? $29,000 = $476,900.


Using the sales comparison approach, the value of the apartment complex is:

A)
$4,060,000.
B)
$3,894,500.
C)
$4,222,000.


Value = (-350,000)(4) + (-500)(6) + (75,000)(75) = 4,222,000


Using the income approach, the value of Williams' apartment complex is:

A)
$4,525,455.
B)
$4,335,455.
C)
$5,727,273.


Appraisal price = NOI / market cap rate = $476,900 / 0.11 = $4,335,454.55

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An investor with a large real estate portfolio must estimate the value of his holdings at year-end. Given the following data for an apartment building in the portfolio, estimate the appraised value using the income approach:

NOI   

  $165,000

Marginal tax rate   

  28%

Market cap rate   

  9%

A)
$1,576,667.
B)
$1,320,000.
C)
$1,833,333.


Appraisal price = NOI / Market cap rate = $165,000 / 0.09 = $1,833,333. Remember that all calculations for the income approach are made pre-tax.

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look

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thanks a lot

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