The potential gross income of a warehouse is $36,000 per year, and the vacancy rate is 2%. The taxes are $2,000 per year; monthly maintenance costs are $300. Quarterly reserves are $450, debt service is $13,500 annually and depreciation is $3,500 annually. If the capitalization rate is 12% what is the estimated value of the warehouse?

The estimated value of the warehouse is $232,333

Explanation:

For computing the estimated value of the warehouse, the following calculations is required which is shown below:

= Gross income - vacancy rate - yearly maintenance - yearly taxes - yearly reserves : capitalization rate

where,

Gross income is $36,000

Vacancy rate is = $36,000 * 2% = $720

Yearly maintenance = Monthly maintenance * Number of months in a year

= $300 * 12

= $3,600

Yearly reserves = Quarterly reserves * Number of quarters in a year

= $450 * 4

= $1,800

Yearly taxes = $2,000

So, the value equal to

= $36,000 - 720 - $3,600 - $1,800 - $2,000 : 12%

= $27,880 : 12%

= $232,333

The other cost is ignored because it is not related to the computation part.

Hence, the estimated value of the warehouse is $232,333