Question

Name APPRAISAL PROBLEM Estimate the present market value of a 10 unit apartment house given the following information pertaining to the property. Each apartment has 1,000 square feet of living area, 3 bedrooms, and kitchen appliances Tenants pay their own utilities The value of the land is $250,000 The estimate replacement value is $150 per square foot for this type of construction. Total operating expenses insurance and property taxes for the year are expected to be $25,000 Rental income, $6,000 month/ allow 5% for vacancy and non-payment Management fees are 6% of total rents collected The building is 20 years old and has an estimated future useful life of 20 more years. A First mortgage is available at 6% for 75% of the purchase price. Equity will be used as the other 25% of the purchase price and the owner requires a return of 12% on the equity investment. Compute the following for the income Approach and the Replacement Cost Approach for estimating the value of income producing property: Total Annual Rental Income minus the vacancy allowance Total Annual Investment Property Expenses List Annual each expense: a) Net income before capitalization b) Capitalization rate adjusted for recapture c) Estimated value of this property using the income approach d) Estimated value using the replacement cost approach

Answer 1

Total Annual Rental Income Minus the Vacancy rate = Rent *(1-Vacancy rate) = 6000*10*12*(1-5%) =684000

Total Annual Expenses:

Operating expenses and insurance	25000
Management fee(6%)	41040
Total expenses	66040

Answer a) Net Income Before Capitalization = Net Rent Income - Total Expenses = 684000-66040= $617960.

Answer b) Capitalization rate = 6%*0.75+12%*0.25= 7.5%

Answer c) Property Value as per income approach = Annual Net income* PVFIA(7.5%, 20 years)

= $ 617960* 10.1945 = $6299,793.22.

Answer d) Replacement Cost Approach Valuation of property = Value of Land + Replacement cost of construction

= 250,000+150*10*1000= $1750,000.