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INCOME APPROACH <br />The subject property is an owner -occupied, single-family residence which has been <br />converted and utilized as a medical office building. As such, the fee simple value is analyzed <br />using market rent and expenses. <br />Market Rent Analysis <br />A survey of Santa Ana and the surrounding cities for recently executed leases and <br />asking rents for office space ranging from 656 to 3,279 square feet in size is used in the <br />analysis. The important factors considered during selection of the comparables include <br />location, building area, visibility and access. The search focused on properties with arterial <br />street visibility, but data for such properties was found to be somewhat limited; however, <br />sufficient data was available to estimate a market rental rate for the subject property. <br />The survey properties indicate that rents are written on a triple -net, modified gross, and <br />full service gross basis. For valuation purposes, a triple -net basis will be utilized. <br />For triple -net leases, the tenants pay operating expenses such as property taxes, <br />insurance, tenant utilities and janitorial, common area maintenance and utilities, building <br />repairs and maintenance, security, parking and sometimes management (or a portion of <br />management). These expenses are normally recouped by the landlord in the form of an <br />expense reimbursement charge. The landlord is still responsible for non -reimbursed <br />management (collecting the check and watching over the property) miscellaneous expenses <br />such as those incurred between tenancy, accounting, legal, miscellaneous and replacement of <br />short-lived items such as the roof, air-conditioning units and exterior walls, if applicable. <br />Based on the review of the rental data and after consideration for differing property <br />characteristics, it is concluded that a rental rate of $1.80 per square foot per month, triple -net, <br />for the subject property is reasonable for the analysis and is used in the direct capitalization <br />analysis. <br />The estimated market income for the subject property is calculated in the following table: <br />CONCLUDED MARKET RENT <br />Building Market Rent/SF Market Annual Market <br />Size Mo. Rent/Mo. Rent <br />1,296 SF $1.80 $2,333 $27,994 <br />75Q-20 <br />