A property owner is offering án office building in a prime location for sale at $12,500,000

Finance Apr 20, 2021

A property owner is offering án office building in a prime location for sale at $12,500,000. According to the property's financial records, it generates an Effective Gross income (EGI) of $1,750,000 and a Net Operating Income (NOI) of $1,050,000. Cap rates (k) for this property type and location are 10%. Based on this information alone, what is a reasonable asking price for the property?

Expert Solution

Answer

the concept is based on income for perpetuity, the income generated from the property will continue for infinite period ,

Value of property should be caluated by use of present value concept ,

PV = Payment / dicounting rate ,

Here, Value of property = NOI / Discounting rate

Value of property = 1,050, 000 / 0.10 = $10,500,000.

Asking price of propert should be $10,500,000.

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote