Question

Cameron owns a 30-unit apartment building next to a loud night club. Cameron loses $400 net income per month because of the loud noise. Many appraisers suggest using a 12% capitalization rate for this type of property in that neighborhood. Cameron's property suffers a loss in value of approximately:

Answer 1

To find the loss in value of Cameron's property due to noise from a neighboring nightclub, we use the capitalization rate method: the annual net income loss is divided by the capitalization rate, resulting in an approximate loss in value of $40,000.

Step-by-step explanation:

The question involves a real estate problem where noise from a nightclub is causing a loss in net income for Cameron, who owns a 30-unit apartment building.

To calculate the loss in value of Cameron's property, we must use the capitalization rate method. This method is used to estimate the value of income-producing properties by taking the net annual income and dividing it by the capitalization rate.

Since Cameron is losing $400 per month, this translates to an annual income loss of $4800 (which is $400 multiplied by 12 months). Given the suggested 12% capitalization rate, we can find the loss in value by dividing the annual income loss by the capitalization rate.

Loss in value = (Net Income Loss) / (Capitalization Rate)

Loss in value = $4800 / 0.12 = $40,000.

Therefore, Cameron's property has suffered an approximate loss in value of $40,000 due to the noise from the nightclub.