Question

	Consider the following pro forma for the next 4 questions
	Potential Gross Income 100,000 sq. ft for the coming year
	average rent $15.00 per ft.	$   1,500,000
	Less Vacancy Allowance (average 8%)	$     (120,000)
	Effective Gross Income	$   1,380,000
	Cleaning expenses (5% of net rev)	$      (69,000)
	Insurance ($ 0.02 per dollar replacement, R.C. = $40 per ft.	$      (80,000)
	Management & Maintenance (11% of revenue)	$    (151,800)
	Reserve for Replacement (savings for major repairs)	$      (50,000)
	Property Taxes ($0.10 per $100 of R.C.)	$          (4,000)
		$    (354,800)
	Estimated Net Operating Income	$   1,025,200
The purchase price today is 9,500,000, what is the cap rate?

Answer 1

Cap Rate = Estimated Operating Income / Purchase Price today

Cap Rate = 1025200 / 9500000

Cap Rate = 10.79%