The value of the building today is $576,000.00
What is the value of a property?
The value of the building present value of its annual cash flows which is the annual cash inflow divided by the capitalization rate based on the present value formula of perpetuity as it is expected that the annual rent would be received forever.
Value of building=annual cash flow/capitalization rate
By annual cash flow ,I mean the rent the 20-unit apartments would generate on a yearly basis, the monthly rent per unit multiplied by number of units and 12 months a year
annual rent=$288*20*12
annual rent=$69,120.00
capitalization rate=discount rate=12%
value of the building=$69,120.00/12%
value of the building=$576,000.00
The maximum amount a rational real estate investor would pay for the building today is the present value of future annual rents, which is $576,000.00
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