Question

Given the following information, calculate the capitalization rate for the apartment complex. Number of apartments: 15;...

Given the following information, calculate the capitalization rate for the apartment complex. Number of apartments: 15; Market Rent (per month): $1,200; Vacancy and Collection Loss: 10% of potential gross income; Operating Expenses: 5% of effective gross income; Capital Expenditures: 10% of effective gross income; Acquisition Price: $1,710,000.

9.5%

9.0%

10.5%

9.7%
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Homework Answers

Answer #1

capitalization rate=NOI/acquisition price

Yearly rent per apartment=12*1200=14400

Total rent for all the 15 apartments=15*14400=216,000

So,the potential gross income=$216,000

Vacancy losses =10%*216,000=$21,600

Effective gross income=Potential gross income-Vacancy losses=$216,000-$21,600=$194,400

Operating expenses=5%*effective gross income=$9720

Capital expenses=10%*194,400=19,440

Net Operating Income (NOI)=Effective gross income-Operating expenses-capital expenditure=$194,400-$9720-$19,440=$165,240

Capitalization rate=NOI/acquisition price=$165,240/$1,710,000=9.7%

Option D is correct

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