Real Estate Problem, i need your help?


real estate problem
Christina B asked:


Hi, i am having trouble on a problem involving real estate, and any help would be greatly appreciated! :)
“An investor is considering the purchase of a 11,000 sq foot warehouse that is expected to command $8.40 per square foot in annual rents. 2 comparable warehouses have recently sold in the market. comparable 1 measures 12,000 sq. ft and sold for $450,000.

comparable 2 measures 8,600 sq ft and sold for $322,500.

compute the gross income multiplier that is implied by these transactions and estimate the value of the subject property.

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2 Responses to “Real Estate Problem, i need your help?”

  1. Positively Pink Says:
    July 18th, 2010 at 11:36 pm

    What is going on with all the real estate related homework questions tonight? This is at least the third one I’ve seen.

    I’m going to answer $410,000, although I honestly don’t really care if I’m right or wrong.

    Brit Positively Pink

  2. 1veY Says:
    July 21st, 2010 at 4:18 pm

    Forget about that $8.40 per sq ft. Its thrown in there to confuse you.

    You have 11,000 sq ft property = ?? need value or price- right?
    Not RENTS -see?

    2 comps 12000 sq ft / $450,000
    8600 sq ft / $322,500

    Now DIVIDE price by sq ft

    450,000 divided by 12000 = 37.5
    322,500 divided by 8600 = 37.5

    37.5 is your Gross Income Multiplier (aka price per sq ft to sell)

    Now multiply by sq footage of subject property to find value or cost

    37.5 x 11,000 sq ft = 412500.

    Subject property valued at app. $ 412,500.00 COST

    See how that makes sense? 8600 sq ft= $322,500
    11,000 sq ft= $412,500
    12,000 sq ft= $450,000

    Hope this helps with your homework ! 1veY

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