Question
An apartment building is expected to generate the following income: Year 1 Year 2 Year 3 Year 4 NOI 14,000 15,500 14,900 15,070 Depreciation 3,500
An apartment building is expected to generate the following income:
| Year 1 | Year 2 | Year 3 | Year 4 | |
| NOI | 14,000 | 15,500 | 14,900 | 15,070 |
| Depreciation | 3,500 | 3,500 | 3,500 | 3,500 |
| BTCF(0) | 3,000 | 4,000 | 5,000 | 6,000 |
| BTCF(from sale) | 140,000 |
The initial investment (acquisition price) is $180,000 and the investor will finance the purchase with a fixed-rate mortgage loan of 150,000 at 6.36% interest rate for 25 years.
a. What is the capitalization rate (Cap Rate) on this investment? Show your work.
b. If the ongoing cap rate for similar properties in the same market is 7.95%, what is the implied market value of this property? Is the asking price above the implied market value?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Advanced Models And Tools For Effective Decision Making Under Uncertainty And Risk Contexts
Authors: Vicente González-Prida, María Carmen Carnero
1st Edition
1799832465,179983249X
