• The NOI for a small income property is expected to be $151,500 for the first year. Financing will be based on a 1.2 DCR applied to the first year, NOI, will have a 10 percent interest rate, and will be amortized over 20 years with monthly payments. The NOI will increase 4 percent per year after the first year. The investor expects to hold the property for five years. The resale price is estimated by applying a 9 percent terminal capitalization rate to the sixth-year NOI. investors require a 13 percent rate of return on equity ( equity yield rate) for this type of property
• a. What is the present value of the equity interest in the property?
• b. What is the total present value of the property (mortgage and equity interests)?
• c. Based on your answer to part (b), what is the implied overall capitalization rate?