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    Exercise - Income Approach

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    anhxxxtuanxxx

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    Exercise - Income Approach

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    anhxxxtuanxxx
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    Original Title

    Exercise_income Approach (2)

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    Exercise - Income Approach

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    VALUATION

    INCOME APPROACH
    Exercise 1:
     Property consists of 10 office suites, 4 on the first floor and 6 on the second.
     Contract rents: 2 suites at $1,500 per month, 2 at $3,600 per month, and 6 at
    $1,560 per month.
     Market rents: 2 suites at $2,635 per month, 2 at $3,200 per month, and 6 at
    $1,862 per month.
     Vacancy and collection losses: 10% per year
     Operating expenses: 40% of effective gross income each year;
     Capital expenditures: 5% of effective gross income each year;
     Expected holding period: 4 years;
     PGI increasing 3 percent per year. Selling expenses are forecasted to be 4
    percent of the expected sale price.
    Using DCF approach to estimate the value of the property.

    Comparable Sale Price NOI1

    A $500,000 $55,000

    B $420,000 $50,400

    C $475,000 $53,400
    Note:

    Year 1 2 3 4

    Interest expense 125,000 125,000 125,000 125,000

    Mortgage balance 1,250,000

    Cost of Sale 4% of Sale price

    1. Using the information provided, calculate the overall capitalization rate by direct
    market extraction assuming each property is equally comparable to the subject.
    2. Using cap rate in Question 1, compute a value for the property using direct
    capitalization.
    3. Using cap rate in Question 1, the property will be held by a buyer for four years,
    compute the value of the property based on discounting unlevered cash flows.
    4. Using cap rate in Question 1, the property will be held by a buyer for four years,
    what is the present value of the levered cash flows?

    GVTH: TS. LÊ BẢO THY 1


    VALUATION

    Exercise 2:
    Given the following owner’s income and expense estimates for an apartment property
    which including 10 two-bedroom suites, formulate a reconstructed operating
    statement. The house’s owner provides you with this 12-month income and expense
    statement prepared for income tax purposes by his accountant.
    Gross revenue for last year (12 months) $235,000
    Operating expense for the same period:
    Realty taxes $7,185
    Depreciation $24,000
    Leasing commission $7,200
    Water $3,680
    Heating and air conditioning $2,127
    Minor repairs and maintenance $4,580
    Electricity for common areas $1,700
    Landscaping design $1,800
    Purchase of 2 stoves and 3 refrigerator $19,500
    Annual janitor’s salary $20,000
    Mortgage payment $9,950
    Mortgage balance (10-year loan) due in 2030 $2,325,000
    Painting of halls and common areas $2,500
    Carpeting halls and public areas $2,500
    After inspecting the subject property and analyzing relevant market data, you conclude
    that:
     Comparable suites in the area rent at $1,980 monthly;
     Vacancy and collection lost is 5%;
     The owner manages the property. However, typical management fees are 3.5%
    of effective gross income;
     Halls and common areas are painted every five years;
     Fire insurance (3-year premium) paid is $2700;
     CAPX is 40% of Effective Gross Income;
     The owner applied a loan contract at Bank of Florida with lending rate 12%/year;
     The sale prices and estimated first-year net operating incomes of comparable
    properties were as follows:
     Comparable 1: Sale price $800,000; NOI $85,000
     Comparable 2: Sale price $820,000; NOI $80,400
     Comparable 3: Sale price $875,000; NOI $83,400
     Comparable 4: Sale price $800,000; NOI $89,000
    Estimate the value of the property using the direct capitalization approach.

    GVTH: TS. LÊ BẢO THY 2

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