Question

A residential building has an NOI of $400,000. Cap rates for similar properties are 5%. A tenant paying $500/month vacates. If the landlord renovates and increases this rent to $1,000/month including utilities, how much value is created?

Select one:

a.

$120,000

b.

$240,000

c.

$96,000

d.

$50,000

e.

$10,000

Answer 1

- Increment increase in rent per month= $1000 - $500 = $500

Incremental increase in renatl income annually =$500*12 = $6000

Cap rate = 5%

Valued created by Incremental rental Income =Incremental increase in renatl income annually/Cap Rate

= $6000/5%

= $120,000

Valued created by Incremental rental Income = $120,000

Option A

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