An Investor Wants to Evaluate an Apartment Building Using the Income

question 5

Essay

An investor wants to evaluate an apartment building using the income approach. She gathers the following data on the apartment complex; all income items are on an annual basis.
$\begin{array}{c}\begin{array}{lll}\\ \hline\text {Gross Potential Rental Income}\\\text {Estimated Vacancy and Collection Losses}\\\text { Insurance and Taxes}\\\text {Utilities}\\\text {Repairs and Maintenance}\\\text {Depreciation}\\\text {Interest on Proposed Financing}\end{array}\begin{array}{l}\text { Investment under Consideration } \\ \hline \$ 100,000 \\5 \% \\\$ 8,000 \\\$ 5,000 \\\$ 12,000 \\\$ 15,000 \\\$ 6,000 \end{array}\end{array}$
Two apartment buildings have recently been sold in the area. Building A had a sales price of $5 million with an annual net operating income of $500,000. Building B had a sales price of $1 million with an operating income of $95,000. Except for size, both buildings have characteristics (location, age, quality, . . .) similar to that of the apartment building under consideration.
According to the income approach, what is the value of the apartment complex?

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