Find the value by use of the income approach. (round to the nearest $100)
1) three-unit apartment rents for $1,000 per month per unit
2) vacancy factor of 5%
3) annual operating expenses $10,000
4) capitalization rate of 8%

Question

Quizplus · Accepted Answer

First, calculate the potential gross income (PGI): 3 units * $1,000/month * 12 months = $36,000. Then, account for the vacancy factor: $36,000 * 5% = $1,800, so the effective gross income (EGI) is $36,000 - $1,800 = $34,200. Subtract the annual operating expenses ($10,000) from the EGI to get the net operating income (NOI): $34,200 - $10,000 = $24,200. Finally, divide the NOI by the capitalization rate to find the value: $24,200 / 0.08 = $302,500.

Find the Value by Use of the Income Approach