Reference no: EM132942661

Ratu Manasa is considering the purchase of a commercial property for $5 million today. Income and expenditure on the property include first year gross potential income of $500,000 vacancy and collection losses equal to 20 percent of gross potential income, operating expenses is 40 percent of effective gross income. Capital expenditure amounts to 10 percent of Effective Gross Income. He has decided to sell the property five years after the purchase and estimate that the market value will increase at 5 percent per year after it is purchased. He is expecting to incur selling expense at 3 percent of the estimated future selling price.

What is the estimated gross income and estimated net operating income for the first year of operations? What is the estimated overall cap rate (Ro) using NOI for the first year of operations? Calculate the net sale proceeds from the sale of the property.