Acme Development Company is considering building a twenty-five (25) unit apartme

Question

Acme Development Company is considering building a twenty-five (25) unit apartment building near Catholic University due to the demand for off-campus student housing. Given the unique needs of the student population, Acme anticipates they will achieve 75% occupancy over the course of a year. Acme is basing their decision on the following assumptions:

? MARR: 15%

? Land Acquisition: $150,000

? Construction Cost: $2,250,000

? Investment Period: 20-years

? Maintenance Expenses: Years 1 to 10: $500 per unit Years 11 to 20: $1,000 per unit

? Property Taxes/Insurance: 10% of total invested cost

Determine the break-even rent that should be charged per month for each apartment.

Explanation / Answer

Assumptions :

Total expenditure = Land Acquisition + Construction cost = $ 2400000.

Converting the Total investment on monthly term with time of 20 years (240 months ) with MARR of 15%.

by using PMT function in excel as "PMT(15/12,240,-2400000,0,0)"

Break even rent per unit = monthly total Expanses / total units ( at 100% occupancy rate)

Break even rent per unit = (monthly total Expanses / total units) / 75% ( at 75% occupancy rate)

Now,

Total Monthly expanses = Monthly share of invesment + monthly tax & insurance + Monthly Maintenance

= $ 31602.95 +$ 20000 + $ 750 = $ 52352.95

Break even = $ 52352.95 /25 = $ 2094.12 /unit ( at 100% occupancy rate)

Break even = $ 2094.12 /75% = $ 2792.16 /unit ( at 75% occupancy rate)

Principle Amount 2,400,000.00 MARR 15.00% Period (in months)             240.00 Monthly payment Amount        31,602.95

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