MEMO

To: Mike Grube

From: Qin He
Date: Feb 26, 2019
Subject: Ellison Apartment Assessment

By analyzing three examples’ sale data, we pinned the estimate capitalization rate at 9.82%,
which is the average capitalization rate of other three examples. And the price we will offer
for the Ellison Apartment is about $226,500.

Target Apartment analyzing

The goal of this memo is to evaluate an appreciate sale price of the Ellison Apartment.

Table below are basic information of the Ellison Apartment.

Rent
No. of
(per Maintenance Heat Water/sewer Insurance Taxes
unit
month)
US$450 2 US$1,500 US$3,400 US$1,200 US$1,200 US$2,600
Vacancy rat
US$470 2
e
US$490 2 5%
Table 1 Basic Information of The Ellison Apartment

According to the data from Table 1, we can create the pro forma performance table

for the Ellison Apartment.

Pro forma
Year 1
Income PGI US$33,840
Vacancy loss US$1,692
EGI US$32,148
OPEX US$9,900
1
Low-Income Housing Tax Credit Analysis

NOI US$22,248
Table 2 The Ellison Apartment Pro Forma Performance

Surrounding Area Transactions Analyzing

Using surrounding area’s transactions data can help to estimate an appreciate

capitalization rate for the market. There are three similar properties sold recently.

By analyzing the information of these three transactions, we decide to set the

estimate capitalization rate at 9.82%, more information will be showed in the Table

3.

No. of Sale Cap.

Comparable Rent EGI OPEX NOI
unit price Rate
A $350 10 US$39,900 $17,000 $22,900 $250,000 9.16%
B $425 12 US$58,140 $26,500 $31,640 $290,000 10.91%
C $500 4 US$22,800 $8,700 $14,100 $150,000 9.40%
AVG 9.82%
Table 3 Capitalization Rate Estimation

Conclusion

Based on the formula: Sale price= Net operating Income/Capitalization Rate, the

final estimate sale price we will offer to the Ellison Apartment is about $226,500.

Additional Questions

1. Main benefits of owning real estate.

2
Low-Income Housing Tax Credit Analysis

There are many benefits to own real estate, and I my mind the first three

benefits are: 1) appreciation of the home, 2) potential tax advantages, and 3)

steady income from rent

2. Four cycles of real estate development, and the best time point to invest a real

estate.

There are four phases for the real estate development:

1) Recession, period market occupancy declines below the long-term

occupancy average.

2) Recovery, period market occupancy returns to normal.

3) Expansion, period demand creates supply

4) Contraction, period supply exceeds demand

Theoretically, the best time to invest real estate is at the end of the recession

phase

3. Difference between market study and appraisal

The purpose of the appraisal is to answer the question, "how much is it worth?

The appraisal is an assessment of the value of a property on a particular date,

while a market study measures the expected market response.