A 12-unit apartment building in California has the following annual financials: Scheduled Gross Rent $180,000; Other Income $9,000; Vacancy and Collection Loss 5%; Operating Expenses (taxes, insurance, maintenance) $42,000; Management Fee 7% of EGI; Replacement Reserves $6,000. Using a 6.5% cap rate, what is the indicated property value?
Correct Answer
B) $1,830,485
Potential gross income is $189,000. Vacancy and collection loss is $9,450, so effective gross income is $179,550. Management is $12,568.50 (7% of EGI), and total operating expenses are $60,568.50 after including $42,000 of stated expenses and $6,000 of reserves. NOI is $118,981.50. Dividing by the 6.5% cap rate gives an indicated value of $1,830,485, rounded to the nearest dollar.
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Previous Question
A California appraiser is using the income approach for a rental property and must determine whether to include ADU (Accessory Dwelling Unit) rental income. The property has a legally permitted ADU that rents for $1,500/month. How should the appraiser treat this ADU income?
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