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17 May, 06:52

An apartment building has 10 units, each of which rents for $550 per month. The vacancy rate is projected to be 4% and operating expenses are projected to be 38% of effective gross income. Estimate the property value using a "cap rate" of 11%. Simply divide the NOI by. 11.

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  1. 17 May, 07:21
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    Estimated Property value using "cap rate" of 11% is $357,118.

    Explanation:

    No. of apartments = 10

    Rent per month = $550

    Vacancy rate = 4%

    Operating Expenses = 38%

    Value of Property = Operating Income / Cap rate

    Value of Property = $39,283 / 11%

    Value of Property = $357,118

    Gross Income (10 x 12 x 550 x (100%-4%) = $63,360

    Operating Expenses ($63360 x 38%) = $24,077

    Net Operating Income = $39,283

    Estimated Property value using "cap rate" of 11% is $357,118.
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