There have been three recent sales of rental properties recorded in a similar location, as follows: Similar property Annual rent Sale price Rate of return 62 Gray Street 22,000 280,000 7.86% 150 White Avenue 19,000 255,000 7.45% 33 Black Road 21,000 270,000 7.78%

Required:

a. Use the capitalisation approach to determine a market value for a residential investment property that is planned to be rented for a net amount of $20,000 p.a.

b. The capitalisation method can also be used to determine the net rent income that can be demanded from a tenant. Suppose a person paid $290,000 for a rental property in a similar area and required a net rental return (after annual operating expenses of $11,000) of 9% p.a. from the investment. What would be the gross rental income that could be expected?