ONLY NEED ANSWER TO QUESTION 2

1. Use the table below to estimate the annual Net Operating Income (NOI) for the first and second year of a building with 8 apartments that are currently rented for $1,125 / month each given the following assumptions:

Capital Expenditures (CAPX) equal to 15% of Effective Gross Income (EGI)

Potential Gross Income (PGI) increases at 5% per year

Anticipated Vacancy and Collection Losses of 10% of PGI

Operating Expenses (OE) equal to $17,440 and $18,110 during 1st and 2nd year

	1st Year	2nd Year
PGI	1125*8*12 = $108000	108000*1.05 = $113,400
VC	10%*108000 = $10800	10%*113400 = $11,340
EGI	$97,200	$102,060
OE	$17,440	$18,110
CAPX	15%*97200 = $14,580	15%*102,060 = $15,309
NOI =	$65,180	$68,641

2. What is the estimated market value of the same building described above utilizing the direct capitalization method if the cap rate for apartments of similar quality is 8%? Use the 2nd year NOI solved for above.