Question

Potential Gross Income 100,000 sq. ft for the coming year
average rent $15.00 per ft.	$   1,500,000
Less Vacancy Allowance (average 8%)	$     (120,000)
Effective Gross Income	$   1,380,000
Cleaning expenses (5% of net rev)	$      (69,000)
Insurance ($ 0.02 per dollar replacement, R.C. = $40 per ft.	$      (80,000)
Management & Maintenance (11% of revenue)	$    (151,800)
Reserve for Replacement (savings for major repairs)	$      (50,000)
Property Taxes ($0.10 per $100 of R.C.)	$          (4,000)
	$    (354,800)
Estimated Net Operating Income	$   1,025,200

We are planning to own this property for 5 years. Rents are projected to grow at 2% per year, vacancy is expected to remain constant at 8% for the first 3 years then jump to 10% in year 4 and remain at that level into the future, insurance will increase 2% per year and the rest of the expenses are as described. What is the NOI in year 5?

Answer 1

	Projected Operating Income Statement
	for 5 years
	Particulars	Year 1	Year 2	Year 3	Year 4	Year 5
a	Average rent per Sqft	$                 15.00	$              15.30	$              15.61	$                  15.92	$                  16.24
b	Area Sq Ft	100,000	100,000	100,000	100,000	100,000
c	Vacancy Allowance	8%	8%	8%	10%	10%
d	Insurance rate for RC $40 per sqft	$                 0.020	$            0.0204	$            0.0208	$                0.0212	$                0.0216
	Operating Income Statement
e	Potentional Gross Income (a*b)	$          1,500,000	$       1,530,000	$       1,560,600	$           1,591,812	$           1,623,648
f	Less Vacancy Allowance =e*c=	(120,000)	(122,400)	(124,848)	(159,181)	(162,365)
g	Effective Gross Income	1,380,000	1,407,600	1,435,752	1,432,631	1,461,283
	Operating Expense
h	Cleaning Expense (5% of Net revenue)	(69,000)	(70,380)	(71,788)	(71,632)	(73,064)
i	Insurance for RC 40sqft	(80,000)	(81,600)	(83,232)	(84,897)	(86,595)
j	Management & Maintenance (11% of net rev)	(151,800)	(154,836)	(157,933)	(157,589)	(160,741)
k	Reserve for replacement	(50,000)	(50,000)	(50,000)	(50,000)	(50,000)
l	Property Tax ($0.10 per $100 of RC )	(4,000)	(4,000)	(4,000)	(4,000)	(4,000)
m	Total operating Expenses	(354,800)	(360,816)	(366,952)	(368,118)	(374,400)
n	Estimated Net Operating Income	1,025,200	1,046,784	1,068,800	1,064,513	1,086,883
	So , the NOI in Year 5 =$1,086,883