An appraiser is valuing a 25-unit apartment building in Syracuse using the income approach. Annual gross rents total $450,000, with a 7% vacancy rate. Operating expenses include: property taxes ($32,000), insurance ($8,400), maintenance ($28,000), management (5% of effective gross income), utilities ($15,600), and reserves for replacement ($18,000). Using a 8.75% capitalization rate, what is the indicated value?
Correct Answer
A) $3,378,000
EGI = $450,000 × 0.93 = $418,500. Management expense = 5% × $418,500 = $20,925. Total operating expenses = $32,000 + $8,400 + $28,000 + $20,925 + $15,600 + $18,000 = $122,925. NOI = $418,500 − $122,925 = $295,575. Value = $295,575 ÷ 0.0875 = $3,378,000.
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Related Topics & Key Terms
Key Terms:
Related Concepts
The income approach estimates a property's value based on the income it generates by converting net operating income into a value estimate using a capitalization rate. It is the preferred method for income-producing properties.
Many states have laws to limit how much property taxes can increase each year, regardless of market value fluctuations.
Various programs and exemptions exist to reduce the property tax burden for specific groups, such as seniors, homesteaders, or veterans.
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- → An example of functional obsolescence is:
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- → A depth table is used to estimate property value for:
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- → FIRREA (Financial Institutions Reform, Recovery, and Enforcement Act) requires:
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