A property is for sale with an asking price of $2.75 million. The property is assumed to increase in value by 3.5% per year and be sold at the end of year 5 for that exact price. Year 1 gross rents are estimated to be $280,000 and to increase at 4% per year. Vacancies and collections are estimated at 8% of gross rents. Operating expenses are estimated to be 35% of Effective Gross Income (Gross rents less vacancies/collections). The purchase will be financed through a loan with a 75% LTV, a 30 year term and an interest rate of 5.25% - the loan will be interest only, no principal amortization. For depreciation purposes, 80% of the purchase price is attributable to the property structure with the balance attributed to land.

please show work in excel

Based on your estimated year 1 NOI, what is the implied capitalization (cap) rate using the asking price?"

		a. 4.75%
		b. 8.63%
		c. 6.09%
		d. 5.35%