Consider the following information: Property 1: Price = $300,000; Effective gros

Question

Consider the following information: Property 1: Price = $300,000; Effective gross income = $48,390; % operating expense = 50%; NOI = $24,200. Property 2: Price = $350,000; Effective gross income = $55,500; % operating expense = 55%; NOI = $30,500. Property 3: Price = $375,000; Effective gross income = $60,000; % operating expense =54%; NOI = $32,400. Assume that the subject property has effective gross income of $53,000 and a NOI of $27,500. What value would a GIM approach yield (rounded to the nearest $100)?

Explanation / Answer

We are looking for yield when property has effective gross income of $53,000 and a NOI of $27,500.

Effective gross income of $53,000 is more close to Effective gross income = $55,500 of property 2. So we use capitalization rate of property 2.

capitalization rate of property 2 = NOI/price = 30500/350000 =0.0871428571429
Given NOI = 27500
Hence required value = NOI/(capitalization rate of property 2)
=27500/0.0871428571429
=315573.770492
So the final answer to nearest 100 is $315500

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