You have been asked to estimate the market value of an apartment complex that is

Question

You have been asked to estimate the market value of an apartment complex that is producing annual net operating income of $68,000. Four highly similar and competitive apartment properties within two blocks of the subject property have sold in the past three months. All four offer essentially the same amenities and services as the subject. All were open-market transactions with similar terms of sale. All were financed with 30-year fixed-rate mortgages using 70 percent debt and 30 percent equity. The sale prices and estimated first-year net operating incomes were as follows:

Comparable 1: Sale price $429,000; NOI $35,100 Comparable 2: Sale price $389,700; NOI $45,900 Comparable 3: Sale price $428,000; NOI $52,600 Comparable 4: Sale price $499,000; NOI $46,600 Hint:

PLEASE ROUND TO THREE (3) DECIMAL PLACES.

What is the estimate value of the property using direct capitalization? Please do not round.

Explanation / Answer

The abstracted going-in capitalization rates from the four properties are listed below:

comparable 1 : 0.0818

comparable 2 : 0.1179

comparable 3: 0.1229

comparable 4: 0.0934

average = 0.104

extimate value = 68000/0.104 = 653846.154

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