Can someone explain this so that I can understand it PLEASE :)

[wickedness1]

Here is the problem I am working on & I'm just not getting it. No matter how hard I try, it just doesnt make sense to me

I am hoping someone can explain it in English so that I can see how the math works to solve it, so that I can finally get the whole concept


The Plum Building, a mixed use building valued at $600,000. At purchase time, the expense were 33% of EGI, vacancy was 6.5%, and the property had a PGIM of 7.5. What is the property's gross monthy rent?


Any help, I'm racking my brain & only gettin a headache!

 

[Austin]

$600,000/7,5= $80,000 income

The 33% expense ratio and 6.5% VAC are superflous in

 

[Michigan CG]

The test question with too much information, stuff you don't need to confuse you.

Value is $600,000

PGIM is (Potential Gross Income Multiplier) is 7.5

So $600,000/7.5 = Potential gross income of $80,000/year.

---------------------------------------------------------

You have a 6.5% vacancy rate which is $5,200 making the EGI $74,800.

Expenses are 33% of that so you have $24,684 in expenses;

Thus an NOI of $50,116.

Value is $600,000 thus $50,116/$600,000 gives you a cap rate of 8.3527%

and a GIM of 8.02.

80,000 PGIM
5,200 Vacancy
74,800 EGI
24,684 Expenses
50,116 NOI

Cap rate 8.3527
GIM 8.02

--------------------------------------------------------------------------

However, now that you have all of this information you don't need it. You had all you needed when you figured out the PGIM from the value/7.5 or the $80,000.

$80,000/12 months = $6,667

Monthly rent = $6,667

 

[wickedness1]

You guys are GREAT. I am copying and pasting your answer to a flash card so that I can keep all of this fresh in my head!

Thanks again, I knew I could count on the forum

 

[JT1974]

Wickedness,

Hang in there brother! Someday you'll get to take your comprehensive exam and you will get to answer about 250 questions like this in a row. That's tons of fun!

 

[Blueprint]

Don't just memorize this. It won't stick as well. You really need to understand what the variables mean and how to calculate each of them seperately if you want to get these right on the test.

They are tricky questions on the exam. They will ask these questions in all diff. ways with diff. verbiage, variables, useless variables, etc. I'm assuming you are taking the Cert exam. Good Luck.

 

[wickedness1]

Well, the good thing is I really understand the PGI minus vacancy =EGI minus expenses = NOI...now its a matter of really getting the multipliers down pat and when to use what numbers in the questions.

I'm starting to get a firm grip on it (I think, lol)

 

[acero97989]

The test question with too much information, stuff you don't need to confuse you.

Value is $600,000

PGIM is (Potential Gross Income Multiplier) is 7.5

So $600,000/7.5 = Potential gross income of $80,000/year.

---------------------------------------------------------

You have a 6.5% vacancy rate which is $5,200 making the EGI $74,800.

Expenses are 33% of that so you have $24,684 in expenses;

Thus an NOI of $50,116.

Value is $600,000 thus $50,116/$600,000 gives you a cap rate of 8.3527%

and a GIM of 8.02.

80,000 PGIM
5,200 Vacancy
74,800 EGI
24,684 Expenses
50,116 NOI

Cap rate 8.3527
GIM 8.02

--------------------------------------------------------------------------

However, now that you have all of this information you don't need it. You had all you needed when you figured out the PGIM from the value/7.5 or the $80,000.

$80,000/12 months = $6,667

Monthly rent = $6,667
__________________
You do not know what you do not know.


Timothy how did you find GIM to be 8.02, sorry I'm lost too.

 

[acero97989]

never mind!! To get the GIM you do Sales $ / EGI