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Calculate the going-in cap rate

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Reference no: EM132999191

Suppose that you are considering the purchase of a shopping center as a real estate investment. The estimated purchase price is $30 million. You are planning to finance the purchase with a 20-year for 70% of the purchase price. The loan has an 10% annual interest rate and will employ monthly payments and monthly compounding.

Use the information below to calculate the going-in cap rate for this potential real estate investment.

Year 1 Potential Gross Income: $5.0 million
Year 1 Effective Gross Income: $4.25 million
Year 1 Net Operating Income: $2.34 million
Year 1 Before-Tax Cash Flow: $1.95 million

Reference no: EM132999191

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