Question

An individual buys a warehouse for $390,000 and wants to know how much income the property will generate. It is estimated that the capitalization rate for the property will be 11% per year. At the same time it is estimated that the yearly operating expenses will be $46,000. Given this information, what is the estimated Gross Operating Income for the property?

(Purchase Price x Capitalization Rate = Net Operating Income)
(Gross Operating Income - Operating Expenses = Net Operating Income)

Answer 1

To calculate the estimated Gross Operating Income for the property, multiply the purchase price by the capitalization rate, subtract the operating expenses, and add the operating expenses back to the Net Operating Income.

Step-by-step explanation:

To calculate the estimated Gross Operating Income for the property, we need to follow the given information.

1. First, calculate the Net Operating Income (NOI) by multiplying the purchase price of the property ($390,000) by the capitalization rate (11%): NOI = $390,000 x 0.11 = $42,900
2. Next, subtract the operating expenses ($46,000) from the NOI to get the Net Operating Income: $42,900 - $46,000 = -$3,100
3. Finally, add the operating expenses ($46,000) to the Net Operating Income to find the Gross Operating Income: Gross Operating Income = -$3,100 + $46,000 = $42,900

Therefore, the estimated Gross Operating Income for the property is $42,900.