You own an apartment complex made up of 10 units each of which is rented out at

Question

You own an apartment complex made up of 10 units each of which is rented out at a monthly rent of $1000. You purchased the facility 2 years ago for $1,000,000, and plan to hold the complex for another 8 years at which time you expect to sell the facility for $1,800,000. Assume your costs of operation for the complex (upkeep, property taxes, employee wages, etc.) amount to $7,500 per month. If you expect to reinvest any cash flows (net income) from the apartment complex at an annual reinvestment rate of 6.0%, what is your expected Horizon Yield for this real estate investment? (Assume a monthly reinvestment of net income payments over the year.) Please explain how you get answer.

Explanation / Answer

No Of units                        10.0 Monthly rent per unit                1,000.0 Monthly rent Income              10,000.0 Monthly expenses                7,500.0 Monthly Net Income=                2,500.0 Reinvestment interest =6% pa= 6/12=                      0.50 % per month Reinvestment period =10 years=                    120.0 months Future value of annuity payments= FV= A*[(1+k)^n-1]/k A=2500 per month n=120 months k =0.5% per month FV = 2500*[1.005^120-1]/0.005 FV = 406,698.40 So The value of the fund after 10 years= $     406,698.40 Sales price of building after 10 years=        1,800,000.0 Less Purchase cost of building        1,000,000.0 Net Yield over 10 years=        1,206,698.4 Yiled % = 120.67% Yearly Avearge Yield= 12.07%

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

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