An investor wants to purchase a property for $800,000 and has the cash in hand (no loan needed). The expected annual rent of the property in year 1 is $50,000, which is expected to grow by 4.5% per year for the next 5 years. The operating expenses (non-reimbursable) of the property are $20,000 in year 1, which is expected to grow by 2.5% per year for the next 5 years. All incomes are accrued and expenses are incurred at the end of each year. Assume the property is purchased at the end of year 0 (the current year) and there is no vacancy during the first 5 years of ownership. The price of the property is expected to grow by 3.5% per year for the next 5 years. If the investor sells the property within the first 5 years of ownership, the investor will incur a selling expense of $1,000 due to agency and legal fees. The capital gain is taxed at the rate of 40% if the property is sold in the first 3 years of ownership but it is exempted if sold in year 3 (4th year of ownership) or later. For simplicity, assume that there has been no depreciation of the property during the period of investor ownership.

What will be the net operating income (NOI) of the property in year 3 (i.e. the 3rd year of ownership)?

a. $33,588.75 b. $30,000.00 c. $54,601.25 d. none of the alternatives