Given the following information, calculate the capitalization rate for the following apartment complex:

number of apartments: 15;

market rent (per month) : $1,000;

vacancy and collection loss: 10% of potential gross income;

operating expenses: 5% of effective gross income;

capital expenditures: 10% of effective gross income;

acquisition price: $1,710,000.

Question

Business

Manuel Zuniga

18 May, 08:54

Given the following information, calculate the capitalization rate for the following apartment complex:

number of apartments: 15;

market rent (per month) : $1,000;

vacancy and collection loss: 10% of potential gross income;

operating expenses: 5% of effective gross income;

capital expenditures: 10% of effective gross income;

acquisition price: $1,710,000.

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Answers (1)

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Lance Taylor · Answer 1

Collections per month = 11,250

Monthly rate = 0.0066

Annual rate = 8.1%

Explanation:

Calculations of capitalization rate for the following apartment complex are as follows:

Collections per month is calculated as = 1000*15 * (1 - 0.10-0.05-0.10) = 11,250

Monthly rate is calculated as = 11,250/1,710,000 = 0.0066

Annual rate is calcuated as = (1 + 0.0066) ^12 - 1 = 8.1%.

Hence, Collections per month are 11,250, Monthly rate is 0.0066 and annual rate is 8.1%