A property is listed for 1,200,000 and has an annual NOI of 115,000 and the capi
ID: 2758372 • Letter: A
Question
A property is listed for 1,200,000 and has an annual NOI of 115,000 and the capitalization rate of 9.58 percent what if the property has an expected annual appreciation of 3 percent selling costs of 4 percent and a five year holding period, what is the before tax IRR for an all cash deal ? A property is listed for 1,200,000 and has an annual NOI of 115,000 and the capitalization rate of 9.58 percent what if the property has an expected annual appreciation of 3 percent selling costs of 4 percent and a five year holding period, what is the before tax IRR for an all cash deal ?Explanation / Answer
Year Property Price NOI Yearly income LESS Selling Cost Total Income PV Factor @11.37% PV of cash flows Year 1 1,200,000 9.58% 114,960 114,960 0.90 103,223 Year 2 1,236,000 9.58% 118,409 118,409 0.81 95,466 Year 3 1,273,080 9.58% 121,961 121,961 0.72 88,291 Year 4 1,311,272 9.58% 125,620 125,620 0.65 81,656 Year 5 1,350,611 9.58% 129,388 54,024 1,425,975 0.58 832,282 610,338 1,906,924 1,200,918 So At 11.37% return the NPV is close to 0, Therfore IRR is 11.37%