Task 2 – Appraisal of Flats 1 – 3, 12 Hospital

Road

Scenario

Sione and Sue Vaina have decided to sell the block of flats they own as an investment in order to purchase a commercial property. They have asked you to meet them to appraise the flats, with a view to putting them on the market.

Here are the details:

Flats 1 – 3, 12 Hospital Road

Land: Cross lease 845m2 section, flat contour, boundary fenced.

Flats: Brick and concrete tile, constructed in 1982. In average to good condition. Each flat has two double bedrooms, open plan living/dining, separate kitchen, bathroom with shower, hand-basin and toilet.

Each flat has a small front garden, and a small private area at the rear, with a clothesline and utility area.

There are three carports at the rear of the section, one for each flat.

The flats were each refurbished two years ago, with new carpet, drapes, and light fittings. Flat 1 also had an upgrade to the kitchen and bathroom.

Income: Each of the flats is currently rented under a periodic tenancy.

Flat 1 is rented for $440 per week.

Flat 2 is rented for $410 per week.

Flat 3 is rented for $420 per week

Sione explains that they’ve never had a problem with renting the flats in the 9 years they’ve owned them. He says ‘There are always hospital and retirement village staff wanting somewhere close to their work. All the current tenants have lived here for at least three years, and we are very happy with them.’ 

On returning to the office, you’ve gathered data on six recent sales in the area. This will help you in your appraisal.

Recent sales in the area

Note: At the time of their sale, each of the following blocks was owned by individual investors.

17 Dunkerron Street

A block of three 2-bedroom flats, with single garages, on unit titles. Constructed in 1985, and currently in average to good condition. Each flat has been refurbished within the last three years. At the time of sale, the three flats were owned by a single investor.

Current gross income:                 $63,000 per year

Current body corporate fees:     $4,200 per year

Sold at auction, 4 weeks ago:     $1,189,000

34 Campbell Road

A block of four 2-bedroom flats, with carports, on cross lease titles. Constructed in 1976, and currently in average to good condition. Flats 1 and 2 were refurbished two years ago, and Flats 3 and 4 were refurbished earlier this year. At the time of sale, the four flats were owned by a single investor.

Current gross income:                 $85,000 per year

Sold at auction, 4 weeks ago:     $1,490,000

57 Poplar Place

A block of three 2-bedroom flats and one 3-bedroom flat, constructed in 1981, on cross lease titles. The 2-bedroom flats are all in very good condition. The 3- bedroom flat was recently severely damaged when a plumbing fixture in the bathroom failed. This flat is expected to be vacant for approximately two months while repairs are completed.

Current gross income:                 $58,000 per year

Sold by tender, 5 weeks ago     $1,362,000

The 3-bedroom flat has an estimated income of $21,000 per year when it becomes available for rental.

74 Bentley Drive

A block of three 2-bedroom flats, with attached garages, on cross lease titles. These have been maintained in excellent condition and attracted strong competitive bidding when they were sold at auction.

Current gross income:                 $67,000 per year

Sold at auction, 2 weeks ago      $1,313,700

Note: You have identified the following two properties as possible comparisons, although in each case, only one flat or apartment was sold, as described below.

A 3-bedroom flat with attached garage and large private garden, in a block of three, on a cross lease site. Constructed of brick and tile in 1984. Maintained to a very high standard throughout. At the time of sale this was owner-occupied, but your property manager has appraised the rental value as between $470 and $490 per week.

Sold, 7 weeks ago         $480,000

Apartment 3E, 27 Commerce Street

A 2-bedroom apartment, with a balcony, and a good view of the city. 1 parking space.

Current gross income:         $23,000 per year

Sold, 3 weeks ago                 $479,000

Instructions

Complete these tasks on the MS Word template for Part 1, which you can find in the zip file in the Assessment area.

1. Use the information above to help you appraise this property using the capitalisation of income method. Apply 50 weeks for your calculation.

2. Write a standard format letter to Sione and Sue, including each of the following:

• an introductory statement

• an appropriate disclaimer

• a brief explanation of how this method of appraisal works

• a summary of the comparison properties chosen

• your estimate of value

• a brief closing statement.