232333

Step 1) $36,000 Potential Gross Income is given by the question

Step 2) $36,000 (Potential Gross Income) X .98 (100% - Vacancy Rate of 2%) = $35,280 (Effective Gross Income)

Step 3) $35,280 (Effective Gross Income) - $2,000 (Taxes) - ($300 (monthly maintenance) X 12 = $3,600 (Annual Maintenance)) - ($450 (Quarterly Reserves) x 4 = $1,800 (Annual Reserves)) = $27,880 (NOI)

Step 4) $27,880 (NOI) / 12% (Cap Rate) = $232,333 (Market Value of Property) The owner of a commercial warehouse has the building listed for $250,000. The net income of the building is $20,000. An investor wants to buy it at a cap rate of 12%. Will the investor offer the owner the same price as the owner has it listed for? If not, by how much will the owner have to change his price to meet the investor's request for a 12% cap rate? Hint: Income Generated/Rate = Value.

Yes, $0

No, $166,667

No, $83,333

No, $250,000 0.08

Gross rents $50,000 - vacancy (5%) $50,000 x .05 - 2,500 = $47,500 (Maintenance $1,000/mo x 12 =) $12,000 + (Property taxes) $3,500 + (Insurance) $2,500 + (Reserve acct. $200/mo x 12 =) $2,400 = Total $20,400 $47,500 - $20,400 = $27,100 R = I / V R = $27,100 / $338,750 = .08 = 8%