A Local 20,000 square foot retail building is 100% occupied by a single tenant. The lease started last week and continues for 10 years. The rent is $7.00 per square foot per year. The landlord pays all the expenses associated with the building. The expenses total $2.00 per square foot per year, and we have determined that they are market-oriented. From a market survey, it is our opinion that 5% is a reasonable vacancy allowance and 2% is a reasonable allowance for collection loss. The market expects a 9% return on investment (overall rate) for investments like this.
1. The potential gross income of the property?
2. The effective gross income of the property?
3. The total expenses are:
4. The net operating income of the property?
5. What is the value of the property using the direct capitalization method of the income capitalization approach?