Given the following owners income and expense estimates for an apartment property, formulate a reconstructed operating statement.

Given the following owners income and expense estimates for an apartment property, formulate a reconstructed operating statement.  The building consists of 10 units that could rent for $550 per month each.

 

Owner’s Income Statement
Rental income (last year)		$60,600
Less: Expenses
Power	$2,200
Heat	1,700
Janitor	4,600
Water	3,700
Maintenance	4,800
Reserves for replacement	2,800
Management	3,000
Depreciation	5,000
Mortgage payments	6,300	34,100
Net income		$26,500

 

Estimating vacancy and collection losses at 5 percent of potential gross income, reconstruct the operating statement to obtain an estimate of NOI.  Remember, there may be items in the owner’s statement that should not be included in the reconstructed operating statement.  Using the NOI and a R_o of 11.0 percent, calculate the property’s indicated market value.  Round your answer to the nearest $500.

Solution:

 

Reconstructed Operating Statement
PGI: (10 units x $550 x 12)		$66,000
Less: Vacancy Loss (at 5 percent)		(3,300)
EGI:		62,700…………………

 

You have been asked to estimate the market value of an apartment complex that is producing annual net operating income of $44,500.  Four highly similar and competitive apartment properties within two blocks of the subject property have sold in the past three months.  All four offer essentially the same amenities and services as the subject.  All were open-market transactions with similar terms of sale.  All were financed with 30-year fixed-rate mortgages using 70 percent debt and 30 percent equity.  The sale prices and estimated first-year net operating incomes were as follows:

 

Comparable 1:  Sale price $500,000; NOI $55,000

Comparable 2:  Sale price $420,000; NOI $50,400

Comparable 3:  Sale price $475,000; NOI $53,400

Comparable 4:  Sale price $600,000; NOI $69,000

 

What is the indicated value of the subject property using direct capitalization?

Solution:

The abstracted going-in capitalization rates from the four properties are listed below:

 

Comparable 1:  0.110

Comparable 2:  0.120

Comparable 3………………