A ten-unit apartment building has five units that lease for $1,000 per month, and five units that lease for $1,500 per month. Unpaid debts and vacancies are 5% of potential gross income. Operating expenses for the building are $100,000 per year. Annual debt service is $24,000 per year.
1. What is the potential gross income?
2. What is the effective gross income?
3. What is the net income?
The owner wants to sell this property. A buyer want to buy the property. A lender wants to lend to the buyer for the purchase of the property. Why is it important for the appraiser to know the lease amounts, unpaid debt amount and vacancy rate when appraising an existing income producing property? Be specific with your answer. Think about the question as if you were the seller and then as if you were the buyer. Think about the question as if you were the lender for the buyer.