Real Estate Cap ? (CFAI V4 - pg 579)

I understand most of the example problem, but where are they getting the “10 percent overall cap rate” used in step 3?

Anybody? I think they just assumed a 10% cap rate, but didn’t say it. Another thing that finally dawned on me was why they use a “sinking fund factor” rather than a traditional mortgage that has Princ/Int combined. Most commercial mortgages require a balloon payment at the end, so the sinking fund factor is the same as the princ. portion of a residential mortgage, but the funds would be set aside so that you have the full amount of the balloon to pay at the end.

they give you the sale price – page 576 - 8 back into cap rate… check out how AD is added twice in figure 10

I know the sale price is given, but it says the sale price was arrived at by taking the NOI for year 5 ($77,792) and dividing by a 10 percent overall capitalization rate. I just wondered if you could have calculated the 10 percent they used to derive the price, from the info given (I don’t think you can). Also interesting is the GIM is basically the inverse of the Cap Rate (except GIM is based on “gross” income). This chapter is definitely doable. I would highly suggest reviewing the two page table (568/569) about the different characteristics. It would be so easy to list a few desires (active/passive mgmt, tax shelter y/n, etc) and then ask which property type you should recommend A. Warehouse B. Apartment Building C. Hotel D. Land…

that table makes me want to peep my finger nails off

That’s ok, I’m about to look at ICAPM and that makes me want to draw on my eyeballs with a highlighter.