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Homework answers / question archive / Mr Tyson is deciding whether to purchase an investment property that he estimates to have operating costs of $325,000 per year, gross potential income of $500,000, and a vacancy rate of 7
Mr Tyson is deciding whether to purchase an investment property that he estimates to have operating costs of $325,000 per year, gross potential income of $500,000, and a vacancy rate of 7.5%. A similar property with an NOI of $122,000 recently sold for $1,000,000. What is the estimated value of this building?
Multiple Choice
$137,500
$325,000
$1,122,392
$1,125,343
$1,127,049
Option e: $1,127,049
Gross Income (GI) = $500,000
Vacancy Rate (VR) = 7.5%
Expected Income = GI (1 –VR)
= 500,000 (1-0.075)
= $462,500
Operating Expenses = $325,000
Expected NOI = 462,500 – 325,000
= $137,500
NOI of similar Property = $122,000
Value of similar property = $1,000,000
Value of building = (137,500 / 122,000) *1,000,000
= $1,127,049
