Question

A property consists of 8 office suites, 3 on the first floor and 5 on the second floor. The contract rents are as follows: 2 suites at $1,800 per month, 1 at $3,600 per month and 5, at $1,560 per month. Annual market rent for all suites increase 3% per year after the first year. Vacancy and collection losses are estimated at 10% of potential gross rent per year. Operating expenses and reserve for replacement or capital expenditures are 45% of effective gross income each year. The expected holding period is 5 years. At the end of the holding period you are expecting to sell the property for $1,180,472.A. Prepare the first year pro forma generating the NOI for year 1.

Answer 1

$89,100

Step-by-step explanation:

Let us first calculate annual gross rent for Year 1:

Total rent per month:

= 2 suites at $1,800 + 1 suites at $3,600 + 5 suites at $1,560

= $3,600 + $3,600 + $7,800

= $15,000

Annual gross rent = Total rent per month × 12

= $15,000 × 12

= $180,000

Effective gross revenue = Potential gross rent revenue - Vacancy and connection losses (10% of potential gross rent)

= $180,000 - $18,000

= $162,000

Net operating income = Effective gross revenue - Operating expenses including depreciation

= $162,000 - $72,900

= $89,100