Question

Given the following information, calculate the overall capitalization rate. Sale price: 950,000, Potential gross income:250,000, Vacancy and collection losses: 50,000, Operating expenses:50,000?

Answer 1

To calculate the overall capitalization rate, subtract the vacancy and collection losses and the operating expenses from the potential gross income. Then divide the resulting net operating income by the sale price. In this case, the overall capitalization rate is 15.79%.

Step-by-step explanation:

To calculate the overall capitalization rate, you need to use the formula: Overall Cap Rate = Net Operating Income (NOI) / Sale Price. The Net Operating Income is calculated by subtracting the Vacancy and Collection Losses and the Operating Expenses from the Potential Gross Income.

In this case, the Net Operating Income would be: NOI = Potential Gross Income - Vacancy and Collection Losses - Operating Expenses = $250,000 - $50,000 - $50,000 = $150,000.

Now, you can calculate the overall capitalization rate using the formula: Overall Cap Rate = $150,000 / $950,000 = 0.1579 or 15.79%.