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An apartment building has 10 units, each of which rents for $550 per month. The vacancy rate is projected to be 4% and operating expenses are projected to be 38% of effective gross income. Estimate the property value using a "cap rate" of 11%. Simply divide the NOI by .11.

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Answer:

Estimated Property value using "cap rate" of 11% is $357,118.

Explanation:

No. of apartments = 10

Rent per month = $550

Vacancy rate = 4%

Operating Expenses = 38%

Value of Property = Operating Income / Cap rate

Value of Property = $39,283 / 11%

Value of Property = $357,118

Gross Income ( 10 x  12 x 550 x (100%-4%) = $63,360

Operating Expenses ($63360 x 38%) =         $24,077

Net Operating Income =                                 $39,283

Estimated Property value using "cap rate" of 11% is $357,118.

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