Question

Use the direct capitalization approach to income valuation to calculate the market value of the apartment building that has been described below: Number of Units: Average rent: Expected annual rent growth: Other income: Expected annual growth in other income: Vacancy and collection losses: Operating expenses: Capital expenditures: Selling expenses: Discount rate: Going-in cap rate: Going-out cap rate: 50 $1,500 per unit per month 4% $20 per unit per month 3% 10% of potential gross income 35% of effective gross income 3% of effective gross income 3% of future selling price 8% 6% 6.25% $7.81 million $8.83 million $8.49 million $9.34 million

          Use the direct capitalization approach to income valuation to calculate the market value of the apartment
building that has been described below:
Number of Units:
Average rent:
Expected annual rent growth:
Other income:
Expected annual growth in other income:
Vacancy and collection losses:
Operating expenses:
Capital expenditures:
Selling expenses:
Discount rate:
Going-in cap rate:
Going-out cap rate:
50
$1,500 per unit per month
4%
$20 per unit per month
3%
10% of potential gross income
35% of effective gross income
3% of effective gross income
3% of future selling price
8%
6%
6.25%
$7.81 million
$8.83 million
$8.49 million
$9.34 million

Show more…

Use the direct capitalization approach to income valuation to calculate the market value of the apartment
building that has been described below:
Number of Units:
Average rent:
Expected annual rent growth:
Other income:
Expected annual growth in other income:
Vacancy and collection losses:
Operating expenses:
Capital expenditures:
Selling expenses:
Discount rate:
Going-in cap rate:
Going-out cap rate:
50
1,500 per unit per month
4%20 per unit per month
3%
10% of potential gross income
35% of effective gross income
3% of effective gross income
3% of future selling price
8%
6%
6.25%
7.81 million8.83 million
8.49 million9.34 million

Added by Christopher C.

Essentials of Modern Business Statistics

David R. Anderson, Dennis J.… 8th Edition

Chapter 14

Instant Answer

Solved by Expert Diwakar Mandilwar

Step 1

Step 1: Calculate the potential gross income (PGI) PGI = Number of Units * Average rent * 12 months PGI = 50 * $1,500 * 12 = $900,000 Show more…

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Use the direct capitalization approach to income valuation to calculate the market value of the apartment building that has been described below. Number of Units: 50 Average rent: $1,500 per unit per month Expected annual rent growth: 4% Other income: $20 per unit per month Expected annual growth in other income: 3% Vacancy and collection losses: 10% of potential gross income Operating expenses: 35% of effective gross income Capital expenditures: 3% of effective gross income Selling expenses: 3% of future selling price Discount rate: 8% Going-in cap rate: 6% Going-out cap rate: 6.25% Market value of the apartment building: - Using the going-in cap rate: $7.81 million - Using the going-out cap rate: $8.83 million - Using the average of the going-in and going-out cap rates: $8.49 million - Using the average of the going-in and going-out cap rates, adjusted for expected annual rent growth and other income growth: $9.34 million

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