Considering an investment property with an asking price of $670,000 and expenses of $1,500 a month, what would be the estimated value if the expected return is 8%?

Considering an investment property with an asking price of $670,000 and expenses of $1,500 a month, what would be the estimated value if the expected return is 8%?

• A. $137,000
• B. $343,250
• C. $612,000
• D. $818,250

Answer: (C)

To determine the estimated value of the investment property based on an expected return of 8%, it’s important to first calculate the annual expenses and then find the net income required for that return. The monthly expenses of the property amount to $1,500. To find the annual expenses, you would multiply the monthly amount by 12, resulting in an annual expense total of $18,000 ($1,500 x 12). Next, since the expected return is set at 8%, this means that the investor desires to earn 8% of the property value (V). The formula for calculating the required return is: \[ \text{Expected Return} = \frac{\text{Net Operating Income (NOI)}}{\text{Value}} \] To find the expected Net Operating Income (NOI), which is typically the income generated by the property minus the expenses, we need to recognize that the estimated value must be greater than the expenses to produce a positive cash flow. If we consider an 8% return as the target, we can express it as: \[ 0.08 \times V = \text{NOI} \] Since we know the expenses are $18,000, we will consider that the NOI

To determine the estimated value of the investment property based on an expected return of 8%, it’s important to first calculate the annual expenses and then find the net income required for that return.

The monthly expenses of the property amount to $1,500. To find the annual expenses, you would multiply the monthly amount by 12, resulting in an annual expense total of $18,000 ($1,500 x 12).

Next, since the expected return is set at 8%, this means that the investor desires to earn 8% of the property value (V). The formula for calculating the required return is:

[ \text{Expected Return} = \frac{\text{Net Operating Income (NOI)}}{\text{Value}} ]

To find the expected Net Operating Income (NOI), which is typically the income generated by the property minus the expenses, we need to recognize that the estimated value must be greater than the expenses to produce a positive cash flow. If we consider an 8% return as the target, we can express it as:

[ 0.08 \times V = \text{NOI} ]

Since we know the expenses are $18,000, we will consider that the NOI