Class Exercise

Income Approach to Value

ABC Apartments: Reconstructed Operating Statement

Income
Potential gross annual income
Rents 11 units 2880 /yr $ 31,680.00
12 units 3096 /yr $ 37,152.00
16 units 3312 /yr $ 52,992.00
16 units 3456 /yr $ 55,296.00

Total $ 177,120.00
Other Income $ 1,380.00
Potential Gross income at 100% occupancy $ 178,500.00
Less Vacancy and Collection Loss $ 7,140.00
Effective gross income $ 171,360.00

Fixed Expenses
RE taxes $ 18,700.00
Insurance
Fire & extended coverage $ 1,880.00
Other $ 770.00
Subtotal $ 21,350.00

Variable
Management (171360 x .05) $ 8,568.00
Superintendent $ 16,000.00
Payroll $ 5,900.00
Electric $ 2,200.00
Other utilities $ 1,000.00
Repair and maintenance $ 12,500.00
Exterior paint $ 1,550.00
Interior decorating $ 3,750.00 *
Misc
Trash removal (45x12) $ 540.00
Pest control (65x12) $ 780.00
Supplies $ 325.00
Other $ 325.00
Subtotal $ 53,438.00

Replacement Allowance
Kitchen & bath equipment (1300x55)/10 $ 7,150.00
Carpeting (900x55)/6 $ 8,250.00
Roof (18000/20yrs) $ 900.00
Subtotal $ 16,300.00

Total operating expenses $ 91,088.00

Operating expense ratio 53%
Net operating income $ 80,272.00
Net operating income ratio 47%

* 55 units x $200 = $11,000; $11,000+240 = 11240;$11240/3 = 3750 (rounded). This entry can be included under replacement allowance.

For one year statementfor an apartment property, no tenant improvement allowance or leasing commissions need be shown.
In multiyear forecsasts for retail centers in office buildings, estimates of these expenses are generally, though not universally,
treated as "below the line" items, i.e. deductions appearing below estimate of NOI.

See Vernor and Rabianski, Shopping Center: Appraisal and Analysis, pg 222-223 and 227.
See John White, The Office Building: From Concept to Investment Reality, Table 21-2, page 402, and Table 30-3, page 595.