Problem 2 - An investor is considering the purchase of an 11,000 sq. ft. warehou

Question

Problem 2 - An investor is considering the purchase of an 11,000 sq. ft. warehouse that is expected (based on comparable properties) to command $8.40 per square foot in annual rents. Two comparable warehouses have recently sold in the market. Comparable 1 measures 12,000 sq. ft. and sold recently for $450,000. Comparable 2 measures 8,600 sq. ft. and sold recently for $322,500. Compute the gross income multiplier that is implied by these transactions and estimate the value of the subject property. Problem 3 - Suppose the investor in the previous problem is concerned that the subject property may be more expensive to operate than the comparable properties. Analysis of the operating expenses for each of the properties reveals the following NET income estimates: Subject Property -- $52,400 Comparable 1 -- $65,600 Comparable 2 -- $47,000 Compute the capitalization rate implied by these transactions to estimate the value of the subject property by the net income capitalization technique. Problem 4 - After you have completed problem 3, indicate what value you will report to the client based on the answers to problems 2 and 3, and why you chose that value.. ( I only need questions 3 and 4 but you will need to calculate 2 to get 3 and 4.

Finance Real Estate

Explanation / Answer

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2.

4. Estimated value of Subject property amounting to $359,553 as per capitalisation rate shall be reported to the client as this method takes into concideration the cost factors like utilties, taxes mantenace etc and a better estimate of value of property.

Property Size(Sq.Ft) Rent Per Sq. Ft. Current Price Rent   Gross Income Multiplier Comparable 1 12000 8.4 $450,000.00 $100,800.00 22.4 Comparable 2 8600 8.4 $322,500.00 $ 72,240.00 22.4 Subject property 11000 8.4 $ 92,400.00 22.4 Rent can be earned from subject property $ 92,400.00 Estimated value of Subject property (92400/22.4 * 100) $412,500.00

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