Aproperty consists of 8 office suites, 3 on the first floor and 5 on the second floor. the contract rents are as follows: 2 suites at $1,800 per month, 1 at $3,600 per month and 5, at $1,560 per month. annual market rent for all suites increase 3% per year after the first year. vacancy and collection losses are estimated at 10% of potential gross rent per year. operating expenses and reserve for replacement or capital expenditures are 45% of effective gross income each year. the expected holding period is 5 years. at the end of the holding period you are expecting to sell the property for $1,180,472.a. prepare the first year pro forma generating the noi for year 1.

$89,100

Explanation:

Let us first calculate annual gross rent for Year 1:

Total rent per month:

= 2 suites at $1,800 + 1 suites at $3,600 + 5 suites at $1,560

= $3,600 + $3,600 + $7,800

= $15,000

Annual gross rent = Total rent per month × 12

                              = $15,000 × 12

                              = $180,000

Effective gross revenue = Potential gross rent revenue - Vacancy and connection losses (10% of potential gross rent)

                                        = $180,000 - $18,000

                                        = $162,000

Net operating income = Effective gross revenue - Operating expenses including depreciation

                                      = $162,000 - $72,900

                                      = $89,100

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