Question: Reconstructed Operating Statement Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Potential Gross Rent $457,200.00 $466,572.60 $476,137.34
| Reconstructed Operating Statement | Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | Year 6 | Year 7 | |||||||||
| Potential Gross Rent | $457,200.00 | $466,572.60 | $476,137.34 | $485,898.15 | $495,859.07 | $506,024.18 | $516,397.67 | $526,983.82 | |||||||||
| Allowance for Vacancies: Less | $27,432.00 | $27,432.00 | $27,432.00 | $27,432.00 | $27,432.00 | $27,432.00 | $27,432.00 | $27,432.00 | |||||||||
| Other Income | $34,000.00 | $34,697.00 | $35,408.29 | $36,134.16 | $36,874.91 | $37,630.84 | $38,402.28 | $39,189.52 | |||||||||
| Effective Gross Income | $463,768.00 | $473,837.60 | $484,113.63 | $494,600.31 | $505,301.97 | $516,223.02 | $527,367.95 | $538,741.35 | |||||||||
| Less: | Less: | Less: | Less: | Less: | Less: | Less: | Less: | ||||||||||
| Property Tax | $85,039.00 | $85,039.00 | $85,039.00 | $93,543.00 | $93,543.00 | $93,543.00 | $93,543.00 | $102,897.00 | |||||||||
| Other Income (Super expense plus free rent expense) | $49,240.00 | $50,249.42 | $51,279.53 | $52,330.76 | $53,403.54 | $54,498.32 | $55,615.53 | $56,755.65 | |||||||||
| Insurance | $13,300.00 | $13,572.65 | $13,850.89 | $14,134.83 | $14,424.60 | $14,720.30 | $15,022.07 | $15,330.02 | |||||||||
| Workers Compensation | $145.00 | $147.97 | $151.01 | $154.10 | $157.26 | $160.48 | $163.77 | $167.13 | |||||||||
| Utilities | $1,140.00 | $1,163.37 | $1,187.22 | $1,211.56 | $1,236.39 | $1,261.74 | $1,287.61 | $1,314.00 | |||||||||
| Supplies and Miscellaneous Expenses | $1,391.30 | $1,419.83 | $1,448.93 | $1,478.64 | $1,508.95 | $1,539.88 | $1,571.45 | $1,603.66 | |||||||||
| Professional Property Management Fees | $27,826.08 | $27,826.08 | $27,826.08 | $27,826.08 | $27,826.08 | $27,826.08 | $27,826.08 | $27,826.08 | |||||||||
| Landscaping and Snow Removal | $2,500.00 | $2,551.25 | $2,603.55 | $2,656.92 | $2,711.39 | $2,766.97 | $2,823.70 | $2,881.58 | |||||||||
| Maintenance Staff | $12,000.00 | $12,246.00 | $12,497.04 | $12,753.23 | $13,014.67 | $13,281.47 | $13,553.74 | $13,831.60 | |||||||||
| Total Operating Expenses | $192,581.38 | $194,215.57 | $195,883.25 | $206,089.13 | $207,825.89 | $209,598.25 | $211,406.95 | $222,606.73 | |||||||||
| Annual Net Operating Income | $271,186.62 | $279,622.03 | $288,230.37 | $288,511.19 | $297,476.09 | $306,624.77 | $315,961.00 | $316,134.62 | |||||||||
| Capitalization Rate | 8.34% | 8.60% | 8.87% | 8.88% | 9.15% | 9.43% | 9.72% | 9.73% | |||||||||
| Market Rate Value | $3,250,000.00 | ||||||||||||||||
Question 1
A) Suggest some reasons why the market capitalization rate might NOT remain constant.
B) Why might it become larger or smaller than the currently prevailing market rate?
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