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svetoff
1 month ago
14

Lonnie is considering the purchase of a rental property with several units. The property rents for $8,600 a month when all units

are occupied. When all units are occupied, additional income from on-sight laundry facilities is expected to be $200 a month. The units are expected to be rented 85% of the year. Additional expenses associated with the property include real estate taxes of $10,000 a year, liability insurance of $3,500 a year, advertising expense of $1,500 a year, maintenance costs of $12,500 a year, depreciation of $20,500 a year, and interest expense on the property loan of $24,000 a year. If Lonnie's required rate of return on the property is 11%, what is the intrinsic value of the property?
Business
1 answer:
stepan [3.5K]1 month ago
3 0
$347,818. The intrinsic property value is calculated as Net operating income / Capitalization rate. The net operating income is determined by earnings from the property minus the operating expenses associated with it. The earnings from the property amount to $89,760, after accounting for annual expenses of $51,500, leading to a net operating income of $38,260. Consequently, the intrinsic value is calculated at $38,260 / 0.11, resulting in $347,818.
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