You are considering a real estate property that generates $300,000 in annual income. The current market cap rate is 9% and the owner will agree to sell at that cap rate. Answer the following: (a) At what price can the property be purchased now? (b) If you purchased the property for the price in (a) and financed the property with a loan for 75% of the purchase price at 7.5% interest, what is the estimated annual return to investors (return on equity) utilizing the current property income? This assumes the loan is interest only and the rental income does not increase. (c) If income from the property was $375,000 in 5 years and the cap rate was 6% at that time, what would the building sell for? Property Current annual Income Current market cap rate Property's estimate Cap Rate value If you financed the building using 75% debt bearing a 6% interest rate, summarize the investor return ($$ and %) using the cap rate approach. Est. Purchase Price Loan Equity Income Interest Expense Income avail to investors Equity return using cap rate methodology