You would like to buy an industrial property in Pointe-Claire that has two tenants occupying all of
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Question:
You would like to buy an industrial property in Pointe-Claire that has two tenants occupying all of the leasable area. The current owner provides you with the following information.
- One tenant has six years remaining on his lease. It is a triple-net lease with a base rent of $50,000 per year for 5,000 square feet. The tenant has always paid his rent on time.
- The second tenant has 4 years remaining on his lease. It is a double-net lease with a base rent of $30,000 per year for 4,000 square feet. The tenant has always paid his rent on time
- There is a small common area of 1,000 square feet.
The owner provides you with an income statement showing the following expenses for last year. Maintenance expenses are expected to increase by $2,000 starting this coming year. All other expenses are not expected to change.
Property taxes | $8,000 |
Income taxes | $7,000 |
Property insurance | $5,000 |
Snow removal | $1,000 |
Maintenance | $5,000 |
Management and Other | $3,000 |
Depreciation | $6,000 |
- The property has no expected vacancy or credit losses.
- The owner has allowed a local company to put up a sign on the side of the building for $1,000 per year.
- The capitalization rate for comparable properties is 10%.
Calculate the value of the property using the Income Capitalization Approach.
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