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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
"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.
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

0.05 x 157,462.5 an OE of $7873.12 I got this with the HP12c calculator.

NOI = $157,462.5 - $7,873.12 = $149,589.38

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

PV of the reversion $1,334,232.22

What is the buyer willing to pay for this property? round to the nearest $1000 = $1,334,000.
 

Elliott

Elite Member
Joined
Apr 23, 2002
Professional Status
Certified General Appraiser
State
Oregon
Jamice,

Look at the example from AI, especially the Short Cut: Short cut.JPG
 

NP_MAI

Senior Member
Joined
Apr 10, 2018
Professional Status
Certified General Appraiser
State
Florida
This thread went about as expected
 

NP_MAI

Senior Member
Joined
Apr 10, 2018
Professional Status
Certified General Appraiser
State
Florida
My friend is taking an appraisal class at a community college and the teacher just got a new job working for the state and has not returned to class to explain the problem to my friend.
If it is your friend's problem, why are they not the one asking for help?
 

RebelNYC

Junior Member
Joined
Aug 6, 2009
Professional Status
Certified General Appraiser
State
District of Columbia
If it is your friend's problem, why are they not the one asking for help?
Appraisers never want to admit what they don't know!
 
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