HELP WITH THESE TWO QUESTIONS! CONFUSED A LITTLE A small 4 unit complex has been
ID: 1711622 • Letter: H
Question
HELP WITH THESE TWO QUESTIONS! CONFUSED A LITTLE
A small 4 unit complex has been sold and you are required to analyse the capitalisation rate and years purchase for the complex based upon the supplied data. Fully document your answer. Sale price $900,000, rent is $400 per week per unit, rates are $6,000 per year, management fees are 7% of the gross rent, a vacancy allowance of 5% for the year, insurance is $5000 per year and maintenance is $6000 per year. You are to provide an unimproved value of land on a unit rate basis (per Ha) for sales analysis of a 100ha property based upon the supplied data. Fully document your answer. Sale price $381,000, depreciated value of sheds and fencing $28,000, water licence $40,000, timber treatment and clearing $22,000, the development period is considered as 6 months using 10% per annum for half the period.Explanation / Answer
Solution :
Gross income(rent) = 400 x 48 x 4 = $ 76800 per year
Rates = $6000 per year
Management fees = 7 % of gross rent
= (7/100 ) * 76800 = $ 5376 per year
Vacancy allowance = (5/ 100) * 76800 = $ 3840 per year
Insurance = $ 5000 per year
Maintenance = $ 6000 per year
Net annual income = 76800 - outgoings
(b) Unimproved land value = ?
Development cost = ( 28000/2) *[( 1+0.1)0.5 - 1] = $ 683.2
Residual land value = Improved value - Total development costs
= ($ 28000 + $ 40,000+ $22000 ) - $ 683.2 = $ 89,316.8
= 76800 - 6000 - 5376 - 3840 - 5000 - 6000 = $ 50584
Capitalization rate for the complex = Net annual income / sales price
= 50584 / 900,000 = 0.0562 = 5.62 %
Year's purchase = 100 / Rate of interest (%) = 100 / 7.8 = 12.82
where rate of interest = 6000/76800 = 0.078
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