Given the following owners income and expense estimates for an apartment property, formulate a reconstructed operating statement. The building consists of 10 units that could rent for $550 per month each.
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Get Help Now!| Owner’s Income Statement | ||
| Rental income (last year) | $60,600 | |
| Less: Expenses | ||
| Power | $2,200 | |
| Heat | 1,700 | |
| Janitor | 4,600 | |
| Water | 3,700 | |
| Maintenance | 4,800 | |
| Reserves for replacement | 2,800 | |
| Management | 3,000 | |
| Depreciation | 5,000 | |
| Mortgage payments | 6,300 | 34,100 |
| Net income | $26,500 | |
Estimating vacancy and collection losses at 5 percent of potential gross income, reconstruct the operating statement to obtain an estimate of NOI. Remember, there may be items in the owner’s statement that should not be included in the reconstructed operating statement. Using the NOI and a Ro of 11.0 percent, calculate the property’s indicated market value. Round your answer to the nearest $500.
Solution:
| Reconstructed Operating Statement | ||
| PGI: (10 units x $550 x 12) | $66,000 | |
| Less: Vacancy Loss (at 5 percent) | (3,300) | |
| EGI: | 62,700………………… | |
You have been asked to estimate the market value of an apartment complex that is producing annual net operating income of $44,500. Four highly similar and competitive apartment properties within two blocks of the subject property have sold in the past three months. All four offer essentially the same amenities and services as the subject. All were open-market transactions with similar terms of sale. All were financed with 30-year fixed-rate mortgages using 70 percent debt and 30 percent equity. The sale prices and estimated first-year net operating incomes were as follows:
Comparable 1: Sale price $500,000; NOI $55,000
Comparable 2: Sale price $420,000; NOI $50,400
Comparable 3: Sale price $475,000; NOI $53,400
Comparable 4: Sale price $600,000; NOI $69,000
What is the indicated value of the subject property using direct capitalization?
Solution:
The abstracted going-in capitalization rates from the four properties are listed below:
Comparable 1: 0.110
Comparable 2: 0.120
Comparable 3………………
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