Question
Your family friend has a 4 unit building that she has owned for decades, that she would like to sell and knows that you and
Your family friend has a 4 unit building that she has owned for decades, that she would like to sell and knows that you and your friend are very interested in getting started in real estate investing. Currently, the building is fully rented.
It contains two, 2-bedroom units and two 3-Bedroom units. One of the 2 bedrooms is rented at $1200 per month. The other 2 bedroom is rented at $1350. The 3-bedrooms are rented at $1550 each. She has been managing it herself so the property expenses are low. The tenants pay most of the utilities except for about $860 per year total. Property tax is about $7500 per year total. Insurance runs about $1100 per year total. The property is in pretty good shape and was remodeled with sturdy materials a few years ago so total maintenance expenses are only about $1000 per year total.
You did some research and found that other properties in similar condition sold at an average cap rate of 6.25.
You and your friend are considering buying it. What is the estimated value of this property?
A. $795,900
B. $863,200
C. $361,100
D. $415,300
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