Question

What is the implied yield on this 10 -Year investment? - Purchase Price: $2,500,000 - Vacancy: 6\% - PGI: $250,000 - Op Ex Ratio: 35\% - PGI Growth Rate: 3\% - Terminal Cap Rate: (50 bps over OAR)

Answer 1

The implied yield on the 10-Year investment is 5.8%.

Step-by-step explanation:

The implied yield on this 10-Year investment can be calculated by using the formula: (Net Operating Income - Vacancy Expense) / Purchase Price. First, calculate the Net Operating Income by subtracting the Operating Expenses from the Potential Gross Income (PGI). Then, subtract the Vacancy Expense from the Net Operating Income. Finally, divide this result by the Purchase Price to get the implied yield. Let's calculate:

Net Operating Income = PGI - (Op Ex Ratio * PGI)

Net Operating Income = $250,000 - (0.35 * $250,000) = $162,500

Implied Yield = (Net Operating Income - Vacancy Expense) / Purchase Price

Implied Yield = ($162,500 - (0.06 * $250,000)) / $2,500,000

Implied Yield = 0.058 or 5.8%