A property has 20,000 squarefeet of rental space. The cost of rent is $30 per sq
ID: 2463782 • Letter: A
Question
A property has 20,000 squarefeet of rental space. The cost of rent is $30 per squarefoot. The vacancy and credit losses is expected at 8% and operating cost (without capital cost allowance) is 30 percent of effective gross income. Financing details for this property is as follows: Loan-to-value ratio is 65%; the loan is $325,000; Interest rate is 12% per annum compounded semi-annually; term of loan is 10 years. There are no processing fees. The cost of the down payment is 5.00% above the effective cost of borrowing and 50% of capital gains is taxed. What is the market value of the property using the net income approach?Explanation / Answer
Potential Gross Income 20000 square feet at 30 per square feet $600,000 Less: Vacancy/Collection Loss - 8% $48,000 Effective Gross Income $552,000 Less Operating cost- 30% of effective gross income -165600 Net Operating Income $386,400 Interest 325000*6%= 19500 Interest 344500*6%= 20670 ($40,170) downpayment(325000/65*35*5% ($8,750) $337,480 effective cost is 12.324% $2,738,397 337480/12.324%