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A property in St. Paul has ten apartments. Each apartment rents for $1,000 per month. Vacancy in St Paul is currently five percent. The
A property in St. Paul has ten apartments. Each apartment rents for $1,000 per month. Vacancy in St Paul is currently five percent. The landlord is responsible to pay gas, water, property taxes, electricity and maintenance. The cost for these are (annually): Gas, water, electricity and maintenance are $30,000 Property taxes are $10,000 Currently, an investor can invest in a savings account and get .01%, the stock market and get 8%, or they can buy this investment. If they purchase this investment, they usually want more than the stock market will provide. The investor tells us they desire ten percent because other similar properties are earning capitalization rates (return on income or ROI) of ten percent. What is the value of this building assuming a ten percent cap rate? 1. Potential Gross Income = $12,000 2. Less vacancy = 10000 3. Effective gross Income = $32,0000 4. Less expenses = $30,000 5. Net operating income= $40,000 $440,00000 Income $30,000 X8% 2,400 10% Rate X $400,000 Value
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