Question

The following slide is the seller-owner's operating statement for an apartment being offered for sale, priced at the market value of $251000. The complex contains 10 two-bedroom apartments which will rent for their fair market value of $470 per month. The I. M. Tuff property management company agrees to manage the complex for the prospective buyers at the prevailing market rate of 6.5% of the adjusted gross rental. The prevailing market vacancy and collection losses rate for this size of complex in the market is 4.00% of the gross potential income. Examination of comparable properties indicate that a reserve for replacements of 4% of adjusted gross was appropriate.

Owner's Expense Statement:

Utilities	$2200
Real Estate Taxes	$3000
Garbage Collection	$1250
Supplies	$500
Mortgage Interest	$18100
Property Insurance	$1400
Maintenance	$3430
Depreciation	$8300
Lawn Service	$1100
Janitorial	$2200

What is the net operating income?

Answer 1

Gross potential income = 470*12*10 =	$         56,400
Less: Vacancy and collection losses at 4.00%	$            2,256
Adjusted gross rental income		$         54,144
Less: Expenses:
Utilities	$        2,200
Real Estate Taxes	$        3,000
Garbage Collection	$        1,250
Supplies	$           500
Mortgage Interest	$      18,100
Property Insurance	$        1,400
Maintenance	$        3,430
Depreciation	$        8,300
Lawn Service	$        1,100
Janitorial	$        2,200
Fee for managing payable to M Tuff Property = 54144*6.5%	$            3,519
Total expenses		$         44,999
Net operating income		$            9,145