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I am not very about the PV of the annual cash flows and PV of the reversion please help.

Jamice4u2

Thread Starter
Sophomore Member
Joined
Oct 28, 2004
Professional Status
Certified General Appraiser
State
California
So I multiple 157,462.5 x 0.0969 to get an expense of $15,251.12? Which $157,462.5 - $15,251.12 equals an NOI of $142,204.38?
 

Jamice4u2

Thread Starter
Sophomore Member
Joined
Oct 28, 2004
Professional Status
Certified General Appraiser
State
California
You need to tell us what the net income stream is for the five years. Then we will capitalize it for you. Be sure and show your work.

I used the 6-Function Compound Table because my fingers are two fat for calculators.
So I multiple 157,462.5 x 0.0969 to get an expense of $15,251.12? Which $157,462.5 - $15,251.12 equals an NOI of $142,204.38?
 

Jamice4u2

Thread Starter
Sophomore Member
Joined
Oct 28, 2004
Professional Status
Certified General Appraiser
State
California
You need to tell us what the net income stream is for the five years. Then we will capitalize it for you. Be sure and show your work.

I used the 6-Function Compound Table because my fingers are two fat for calculators.
You are appraising a single tenant retail building, 13,000 square feet of gross leasable area. Market rents in the area
are $12.75 per square foot annually on a NNN basis. Vacancy and collection losses in the market for similar buildings are
tracking at 5% of gross income. Because it is a NNN lease, the tenant is paying all the real estate operating expenses. The
landlord is depositing 5% of his effective income annually to a sinking fund to save for future capital expenses. Total
annual net operating income is expected to be the same over a 5 year holding period. The buyer and her agent expect
the property to sell for $2.1M at the end of the five year holding period. What is the buyer willing to purchase this
property for if her required rate of return on the investment is 9%?

Each answer is worth 1 pt

PGAI $12.75 x 13,000 = $165,750

VCL $165,750 x 0.05 = $8287.5

EGI $165,750 - $8287.5 = $157,462.5

0.0969 is my sinking fund factor over a period of 5 years which will give me an OE of $15,258.12 I got this with the HP12c calucator.

NOI = $157,462.5 - $15,258.12 = $142,204.38

PV of the annual cash flows

PV of the reversion

What is the buyer willing to pay for this property? round to the nearst $1000
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
Nope. Grasshopper, you have a income stream for 5 years which will be discounted at 9%. So its going to be less than 5 and probably more than 3. (9% is a heavy cap rate or discount rate).
And you get a $2 million after five years, so you need to know what the value of that $2 million is today, or PW of 1, 5 years, again at a heavy discount of 9%. So it will be less than 1, but probably more than 0.5.

Your on the right track, up to EGI. Close to being able to send an invoice.
 

Jamice4u2

Thread Starter
Sophomore Member
Joined
Oct 28, 2004
Professional Status
Certified General Appraiser
State
California
Nope. Grasshopper, you have a income stream for 5 years which will be discounted at 9%. So its going to be less than 5 and probably more than 3. (9% is a heavy cap rate or discount rate).
And you get a $2 million after five years, so you need to know what the value of that $2 million is today, or PW of 1, 5 years, again at a heavy discount of 9%. So it will be less than 1, but probably more than 0.5.

Your on the right track, up to EGI. Close to being able to send an invoice.
I am only using the numbers in the math problem I can not just make numbers up even though the number may not make sense I still have to only use the number presented to me an solve the problem from the number give to me.
Nope. Grasshopper, you have a income stream for 5 years which will be discounted at 9%. So its going to be less than 5 and probably more than 3. (9% is a heavy cap rate or discount rate).
And you get a $2 million after five years, so you need to know what the value of that $2 million is today, or PW of 1, 5 years, again at a heavy discount of 9%. So it will be less than 1, but probably more than 0.5.

Your on the right track, up to EGI. Close to being able to send an invoice.
The value of $2,100,000 today would be $1,341,269.37. Based on CHS -$2,100,000 FV, PMT = 15,258.12, i =9 and n =5 which gives me a present value for reversions of $1,305,507.15 for reversions and a present value of $1,364,855.91. CHS -2,100,000 FV, PMT = $15,258.12, i=9 and n=5 which gives me a present value of $1,364,855.91.
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
I think you've got the reversion. The $150K net income stream is worth a significant amount. Maybe not 5x150 because its a discounted flow, but who wouldn't want $150K for 5 years.
There's an example in AI chapter which is very similar to your problem.
 

Jamice4u2

Thread Starter
Sophomore Member
Joined
Oct 28, 2004
Professional Status
Certified General Appraiser
State
California
I'm thinking the 5% expense is just a 5% expense.

Maybe this will help,

You are appraising a single tenant retail building, 13,000 square feet of gross leasable area. Market rents in the area
are $12.75 per square foot annually on a NNN basis. Vacancy and collection losses in the market for similar buildings are
tracking at 5% of gross income. Because it is a NNN lease, the tenant is paying all the real estate operating expenses. The
landlord is depositing 5% of his effective income annually to a sinking fund to save for future capital expenses. Total
annual net operating income is expected to be the same over a 5 year holding period. The buyer and her agent expect
the property to sell for $2.1M at the end of the five year holding period. What is the buyer willing to purchase this
property for if her required rate of return on the investment is 9%?

Each answer is worth 1 pt

PGAI $12.75 x 13,000 = $165,750

VCL $165,750 x 0.05 = $8287.5

EGI $165,750 - $8287.5 = $157,462.5

0.180975 is my sinking fund factor over a period of 5 years which will give me an OE of $28,496.74 I got this with the HP12c calucator.

NOI = $157,462.5 - $28,496.74 = $128,965.76

PV of the annual cash flows $1,364,855.91

PV of the reversion $1,250,013.53

What is the buyer willing to pay for this property? round to the nearest $1000 = $1,250,000
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
"The landlord is depositing 5% of his effective income annually to a sinking fund to save for future capital expenses."

I think the purpose of the problem is to figure out the PW of the income stream and reversion. I think you are reading too much into the 'sinking fund' comment. I take it to mean
he has set up a depreciation account of 5% of effective gross, so it would come off of net income after vacancy.
 
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