An apartment building has potential gross annual income of $50,000. The vacancy factor is 5%. The maintenance expenses are $1,000 per month. The property taxes are $3,500 per year. The insurance is $2,500 per year. The reserve account is built at a rate of $200 per month. The mortgage payments are $1,500 per month. If the value of the building is $338,750, what is the capitalization rate?

Question

Aydan Carney

Business

13 December, 00:14

An apartment building has potential gross annual income of $50,000. The vacancy factor is 5%. The maintenance expenses are $1,000 per month. The property taxes are $3,500 per year. The insurance is $2,500 per year. The reserve account is built at a rate of $200 per month. The mortgage payments are $1,500 per month. If the value of the building is $338,750, what is the capitalization rate?

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Answers (1)

Know the Answer?

Grant Montgomery · Answer 1

0.08 or 8%

Explanation:

By applying following steps:

Gross Rent 50000 - vacancy

50000 - (5%*50000) = 47500

= (Maint USD 1000/mo*12) 12000 + (Property Tax) + Insurance + (Res acct 200*12) 2400

= 12000 + 3500 + 2500 + 2400

= USD 20400

So,

47500 - 20400=27100 R

By below derivation we get:

I/VR

=27100/338750

=0.08 or 8%