A 30-unit apartment building should last 35 years, when it will need to be eithe

Question

A 30-unit apartment building should last 35 years, when it will need to be either replace or undergo major renovation. Assume the building’s value at 35 years will be 10% of its construction cost. Assume it will be sold, and that the land’s cost will be recovered in full.

$3.2 Million                 Land

$4.8 Million                 Building

$850,000                     Annual operating and maintenance

6%                               Annual property taxes and insurance (% of initial investment)

12%                             Vacancy rate

a. If the owner wants a 15% rate of return, what is the required monthly leasing cost for each unit?

b.

If turning 2 units into an exercise facility would decrease the vacancy rate by 5%, would that be a good decision?

Explanation / Answer

Value @ the beginning- ie. Initial investment= 3.2+4.8 8000000 Sale Value @ the end of 35 yeas-ie.Salvage value = 3.2+ 10% of 4.8 3680000 Depreciable value of the asset(8000000 - 3680000) 4320000 Annual depreciation = 4320000/35 yrs.= 123428.5714

    a) Annual expenses for 30 units Annual operating maintenance 850000 Annual property taxes and insurance 480000 (6%*8000000) Annual depreciation expenses 123429 Total annual expenses/outflow 1453429 This amount should be spread over 88% units due to 12% vacancy rate Total annual expenses/outflow to be borne by the occupied units ie. 88% 1453429

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.