Consider two real estate assets: Property A: The tenant pays NOI = $10,000, growing at growth...

 

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Consider two real estate assets: Property A: The tenant pays NOI₁ = $10,000, growing at growth rate g = 3%, with cap rate CapRate = 8%. Property B: The tenant pays NOI₁ = $10,000, growing at growth rate g = 3%, with cap rate CapRate = 8%. Unlike Property A, this property is liable for an annual local tax of $1,000. Fortunately, this tax will apply only for years 1 to 10. What is the difference, in $, between the market values of the two properties? Consider two real estate assets: Property A: The tenant pays NOI₁ = $10,000, growing at growth rate g = 3%, with cap rate CapRate = 8%. Property B: The tenant pays NOI₁ = $10,000, growing at growth rate g = 3%, with cap rate CapRate = 8%. Unlike Property A, this property is liable for an annual local tax of $1,000. Fortunately, this tax will apply only for years 1 to 10. What is the difference, in $, between the market values of the two properties?

Answer rating: 100% (QA)

To calculate the market values of the two properties we need to use the formula for the present valu... View the full answer