You are a real estate valuer for Bank of Almost Anything Go-forward.  You are valuing an apartment complex in New Zealand,that your client wishes to purchase.  They have provided you with the following details: 

Rental income for 2022 is expected to be $5,000,000 if all apartments are occupied.   The vacancy rate is expected to be 35% if the economy goes into recession or 1% if the economy grows.   The probability of a growing economy is 80% .  Expenses per year include government land taxes ($185,000), insurance ($105,000) maintenance ($320,000) and a compulsory foreign ownership property levy tax  ($95,000).  Assume that only the revenue stream varies with the type of economy faced.

Use the capitalisation of net income method to find the expected value of this apartment complex if the discount rate of your client is 5%.

Explain the nature of a real estate loan, are they safe and why are these types of loans important?

Answer rating: 100% (QA)

To calculate the expected value of the apartment complex we need to consider the rental income expenses and the probability of different economic conditions The expected rental income for 2022 is 5000... View the full answer