1215

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.

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

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

A) $4,060,000.

B) $3,894,500.

C) $4,222,000.

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

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

A) $4,525,455.

B) $4,335,455.

C) $5,727,273.

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

1215

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.

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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.

FOREVER396

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luqian55

thanks a lot