(SOLVED) Johnson is considering the purchase of Happy Valley Acres, a 300-unit apartment complex.
Johnson is considering the purchase of Happy Valley Acres, a 300-unit apartment complex. She has hired Carson to advise her on the investment. Carson has estimated the following data for Happy Valley Acres for the next accounting period:
Potential rental income = $3.80 million
Vacancy rate = 3.5%
Insurance costs = $250,000
Financing costs = $940,000
Property taxes = $400,000
Utility expense = $120,000
Repair costs = $200,000
Depreciation = $350,000
Required return = 8%
Calculate the net operating income (NOI) and property value.
Expert Solution Preview
NOI = rental income * (1-vacancy rate) - insurance cost - property taxes - utility expenses - repair costs
NOI = 3800000*(1-3.5%) - 250000 - 400000 - 120000 - 200000