a) Use the capitalisation approach for the following situation to determine a market value for a residential investment property that is planned to be rented for a net amount of $20,000 p.a..
There have been three recent sales of rental properties recorded in a similar location, as follows:
$\begin{array} { l c c c }
\text { Similar property } & \text { Annual rent } & \text { Sale price } & \begin{array} { c }
\text { Rate of return } \
\text { (capitalisation rate) }
\end{array} \
\text { 62 Gray Street } & \mathbf { \$ 2 2 , 0 0 0 } & \mathbf { \$ 2 8 0 , 0 0 0 } & 7.86 \% \
\text { 150 White Avenue } & \mathbf { \$ 1 9 , 0 0 0 } & \mathbf { \$ 2 5 5 , 0 0 0 } & 7.45 \% \
\text { 33 Black Road } & \mathbf { \$ 2 1 , 0 0 0 } & \mathbf { \$ 2 7 0 , 0 0 0 } & 7.78 \%
\end{array}$

b) The capitalisation method can also be used to determine the net rent income that can be demanded from a tenant. Suppose a person paid $290,000 for a rental property in a similar area and required a net rental return (after annual operating expenses of $11,000) of 9.0% p.a. from the investment. What would be the gross rental income that could be expected?

Question

a) Use the capitalisation approach for the following situation to determine a market value for a residential investment property that is planned to be rented for a net amount of $20,000 p.a..
There have been three recent sales of rental properties recorded in a similar location, as follows:
$\begin{array} { l c c c } 
\text { Similar property } & \text { Annual rent } & \text { Sale price } & \begin{array} { c } 
\text { Rate of return } \
\text { (capitalisation rate) }
\end{array} \
\text { 62 Gray Street } & \mathbf { \$ 2 2 , 0 0 0 } & \mathbf { \$ 2 8 0 , 0 0 0 } & 7.86 \% \
\text { 150 White Avenue } & \mathbf { \$ 1 9 , 0 0 0 } & \mathbf { \$ 2 5 5 , 0 0 0 } & 7.45 \% \
\text { 33 Black Road } & \mathbf { \$ 2 1 , 0 0 0 } & \mathbf { \$ 2 7 0 , 0 0 0 } & 7.78 \%
\end{array}$

b) The capitalisation method can also be used to determine the net rent income that can be demanded from a tenant. Suppose a person paid $290,000 for a rental property in a similar area and required a net rental return (after annual operating expenses of $11,000) of 9.0% p.a. from the investment. What would be the gross rental income that could be expected?

Quizplus · Accepted Answer

The Answer of a) Use the capitalisation approach for the following situation to determine a market value for a residential investment property that is planned to be rented for a net amount of $20,000 p.a..
There have been three recent sales of rental properties recorded in a similar location, as follows:
$\begin{array} { l c c c } 
\text { Similar property } & \text { Annual rent } & \text { Sale price } & \begin{array} { c } 
\text { Rate of return } \
\text { (capitalisation rate) }
\end{array} \
\text { 62 Gray Street } & \mathbf { \$ 2 2 , 0 0 0 } & \mathbf { \$ 2 8 0 , 0 0 0 } & 7.86 \% \
\text { 150 White Avenue } & \mathbf { \$ 1 9 , 0 0 0 } & \mathbf { \$ 2 5 5 , 0 0 0 } & 7.45 \% \
\text { 33 Black Road } & \mathbf { \$ 2 1 , 0 0 0 } & \mathbf { \$ 2 7 0 , 0 0 0 } & 7.78 \%
\end{array}$

b) The capitalisation method can also be used to determine the net rent income that can be demanded from a tenant. Suppose a person paid $290,000 for a rental property in a similar area and required a net rental return (after annual operating expenses of $11,000) of 9.0% p.a. from the investment. What would be the gross rental income that could be expected?

A) Use the Capitalisation Approach for the Following Situation to Determine