question archive There is a 10 unit apartment complexifor sale
There is a 10 unit apartment complexifor sale
Subject:FinancePrice:2.87 Bought7
There is a 10 unit apartment complexifor sale. All have one BR, separate utilities, acreage to expand, monthly income is $3900 and asking price is $175,000. Assume 10% vacancy, no capital reserve, and 40% fixed and variable expenses. What is capitalization rate? Why would this be attractive for investor?
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Answer:
| Potential gross rent (10 x $3900 x 12 months) | $468,000.00 |
| Less: 10% Vacancy (10% x $468,000) | $46,800.00 |
| Effective Gross Income (EGI) | $421,200.00 |
| Less: 40% Fixed and Variable Expense (40% x $468000) | $187,200.00 |
| Net Operating Income | $234,000.00 |
| Capitalisation Rate = NOI/Sale Price | |
| Capitalisation Rate = $234,000/($175,000 x 10 units ) | 13.37% |
| It is attractive to investor because most real estate will appreciate in value each year, typically 3 to 4 percent, again depending on the area and the market. |
