Given the following information, calculate the capitalization rate for the following apartment complex. Number of apartments: 15; Market Rent (per month): $1,000; Vacancy and Collection Loss: 10% of potential gross income; Operating Expenses: 5% of effective gross income; Capital Expenditures: 10% of effective gross income; Acquisition Price: $1,710,000.

Question

Quizplus · Accepted Answer

Step 1: Determine the potential gross income:
15 apartments x $1,000 per month x 12 months = $180,000 per year
Step 2: Calculate the vacancy and collection loss:
$180,000 x 10% = $18,000
Step 3: Calculate the effective gross income:
$180,000 - $18,000 = $162,000
Step 4: Calculate the annual operating expenses:
$162,000 x 5% = $8,100
Step 5: Calculate the annual capital expenditures:
$162,000 x 10% = $16,200
Step 6: Calculate the net operating income:
$162,000 - $8,100 - $16,200 = $137,700
Step 7: Calculate the capitalization rate:
$137,700 / $1,710,000 = 0.0804 or 8.1%

Given the Following Information, Calculate the Capitalization Rate for the Following