Appraisal Problem Estimate the present market value of a 10 unit apartment house

Question

Appraisal Problem

Estimate the present market value of a 10 unit apartment house given the following information pertaining to the property. Each apartment has 1,000 square feet of living area, 3 bedrooms and kitchen appliances. Tenants pay their own utilities. The value of the land is $250,000. The estimate replacement value is $195 per square foot for this type of construction.

Total operating expenses, insurance, and property taxes for the year, $12,000

Management fees are 6% of total rents. The building is 20 years old and has an estimated future useful life of 40 more years. First mortgage are available at 6% for 75% of the purchase price. Equity will be used as the other 25% of the purchase price and requires a 10% return.

Compute the Following

Net income before capitalization__________
Capitalization rate adjusted for recapture_________
Estimated value of the property using the income approach $____________
Estimated value of the property using the replacement cost approach $_____________

Explanation / Answer

a) Total operating expenses, insurance, and property taxes for the year = $12,000 There fore Management Expenses = $ 12,000 i.e 6 % of rent Therefore Rent = 12000/ 6% Rent = $ 200,000 Net Income before Capitaization = $ 200,000 Net Income before Capitaization = $ 200,000 b) Capitalization rate adjusted = Net operating Income / cost Capitalization rate adjusted = 200000 / 250000 = 80% c) Estimated value of the property using the income approach Net Income = Rent - Management Expenses Net Income = 200000-12000 NET Income =188,000 Present Value= net income * Capitalization rate for 40 Years                                                                                           Present Value= net income * Capitalization rate for 40 Years Present Value= 188,000*1.2499 99992 d) Replacement Cost would be                                    = $195 *10000sqft *10 flats Replacement Cost would be = $195,00,000 Replacement Cost = interest @ 6 % of 75% of 195,00,000 + 25% of 195,00,000 *10 % euity Replacement cost = 19500000 + 877500 + 487500 Replacement cost 20865000

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