A freehold property has recently been let for $25,000 per year. Using the annual in arrears assumption and a capitalisation rate of 6.5%, what is the value? ( Answer: $384,615.38)
To find the value of the freehold property, we can use the formula for capitalization rate: Value = Net Operating Income / Capitalization Rate.
First, let's calculate the Net Operating Income (NOI). Since we know that the property has been let for $25,000 per year and the annual in arrears assumption means that the income is received at the end of each year, the NOI is equal to the annual rent.
NOI = $25,000
Next, we need to calculate the Capitalization Rate. The capitalization rate is expressed as a percentage, so we need to convert it to a decimal by dividing it by 100.
Capitalization Rate = 6.5% / 100 = 0.065
Now we can use the formula to find the value:
Value = NOI / Capitalization Rate
Value = $25,000 / 0.065
Value ≈ $384,615.38
Therefore, the value of the freehold property is approximately $384,615.38.