Estimate the present market value of a 10 unit apartment house given the followi

Question

Estimate the present market value of a 10 unit apartment house given the following information pertaining to the property. Each apartment has 1,200 square feet of living area, 3 bedrooms and kitchen appliances. Tenants pay their own utilities. The value of the land is $100,000. The estimate replacement value is $120 per square foot for this type of construction. Total operating expenses, insurance, and property taxes for the year, $27,200 Rental income, $15,000 month/allow 5% vacancy. Management fees are 10% of total rents. The building is 20 years old and has an estimated future useful life of 25 more years. First mortgage are available at 5% for 70% of the purchase price. Equity will be used as the other 30% of the purchase price and requires a 12% return. A) Gross rental income per year less vacancy: ??? B) Total annual expense and property management fees: ? C) Net income before capitalization: ? D) WACC: ? E) Annual % rate needed to recover the investment costs over the remaining future life of the project: ? F) Capitalization rate adjusted for recapture: ? G) Estimated value of this property using the income approach: ? H) Estimated value of this property using the replacement cost approach: ?

Explanation / Answer

A) Gross Rental income less vacancy

Monthly rent = 15000- 5% =14250$

Yearly rent = 14250*12 = 171,000$

B) Statement showing total annual expense

C) Net income

D) WACC

Weight * cost of debt + weight *cost of equity

0.7*5% + 0.3*12%

=3.5% + 8.4%

=11.9%

Particulars Amount Total operating expenses, insurance, and property taxes 27200 Management fees (10% of 171000) 17100 Total expense 44300

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