An investor wants to acquire income property that will generate a 10% cap rate. A 6-unit apartment complex rents for $950 per unit per month. Vacancies are 5% of gross rents and operating expenses total $20,500 per year. What is the maximum the investor should offer for this property? (round to nearest $1,000)

Question

Quizplus · Accepted Answer

To find the maximum offer, calculate the Net Operating Income (NOI) and divide by the desired cap rate. Gross rents are $950 x 6 units x 12 months = $68,400. Adjust for 5% vacancy: $68,400 x 0.95 = $64,980. Subtract operating expenses: $64,980 - $20,500 = $44,480 NOI. Divide by 10% cap rate: $44,480 / 0.10 = $444,800, rounded to $445,000.

An Investor Wants to Acquire Income Property That Will Generate