Question

Given the following information, calculate the capitalization rate for the following apartment complex: number of apartments:30;

market rent (per month): $1,250;

vacancy and collection loss: 5% of potential gross income;

operating expenses: 20% of effective gross income;

capital expenditures: 5% of effective gross income;

acquisition price: $5,550,000

Can you teach me how to do this on excel?

Answer 1

Capitalization rate is calculated is the ratio between the net operating income produced by an asset and its acquisition price.

Capitalization Rate = Net Operating Income / Acquisition Price

Net Operating Income= Gross Income - Vacany & Collection losses - Operating Expenses - Capex

Steps to Calculate Capitalization rate in excel:

Step 1 : Write down all the facts given in the question.

Step 2: Calculate Net Operating Income using the above mentioned formula

Acquisition Price	5,550,000
Number of Apartments	30
Rent per month	1,250
Total rent per month	37,500
Total rent per year (Gross Income)	450,000
vacany & collection loss	22,500
operating expenses	90,000
Capital Expenditure	22,500
Net Operating Income	315,000

Step 3: Divide value in cell adjacent to Net Operating Income with value in cell adjacent to Acquisition Price

Using Step 3, we get capitalization rate = 5.68%