Reference no: EM132206250
Question -
1. An investor is evaluating a property with the following projected income and expenses:
Income $750,000 (year 1); increasing at 3.5% per year
Vacancy Loss 7.0% of PGI
Collection Loss 1.5% of PGI
Expenses:
Management Fee 2.5% of EGI
Property Taxes $75,000 (years 1 to 3); $90,000 (years 4 to 6)
Insurance $15,000 (year 1); increasing at 3.0% per year
Utilities $65,000 (year 1); increasing at 4.0% per year
Janitorial $50,000 (year 1); increasing at 3.0% per year
2. Assume that the investor can sell the property at the end of year 5 at a 7.0% residual cap rate on year 6 NOI and there are selling costs of 4.5%. What is the property's residual value?
3. If an investor requires a 7.0% IRR, what is the NPV of the project?
4 Describe the investment's position on the Real Estate Risk Curve. Give an example of something that could change at the property to cause the investment to shift.