# Question: You are considering the purchase of an office building for

You are considering the purchase of an office building for $1.5 million today. Your expectations include the following: first-year potential gross income of $340,000; vacancy and collection losses equal to 15 percent of potential gross income; operating expenses equal to 40 percent of effective gross income and capital expenditures equal 5 percent of EGI. You expect to sell the property five years after it is purchased. You estimate that the market value of the property will increase four percent a year after it is purchased and you expect to incur selling expenses equal to 6 percent of the estimated future selling price.

1. What is estimated effective gross income (EGI) for the first year of operations?

2. What is estimated net operating income (NOI) for the first year of operations?

3. What is the estimated going-in cap rate (Ro) using NOI for the first year of operations?

1. What is estimated effective gross income (EGI) for the first year of operations?

2. What is estimated net operating income (NOI) for the first year of operations?

3. What is the estimated going-in cap rate (Ro) using NOI for the first year of operations?

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