Part Three: You are an employee of University Consultants, Ltd$.$ and are to present an investment analysis of a small apartment building for sale to your client. The asking price for the property is $$1,100,000.$ Rents are estimated at $$750$ for each of the $20$ units during the first year and are expected to grow at $5\%$ per year. Vacancy and bad debt allowances are $7\%$ of PGI per annum. Annual operating expenses for the first year are $$85,000$ and are also expected to increase at a $5\%$ rate. A lender has offered a loan at $8\%$ for $30$ years, compounded monthly. Early payoff will incur a $4\%$ prepayment penalty, total financing costs are $$25,000,$ and acquisition costs are $$20,000.$ The property will likely sell for $$1,350,000$ at the end of the five$-$year holding period with a $3\%$ commission payable to the agent. Depreciation is calculated using the straight$-$line method over a $27\mathrm{.}5-$year period. The depreciable $($cost$)$ basis is $80\%$ of the purchase price. Your client's required rate of return is $15\%$ with a marginal tax rate of $37\%.$

Assumptions:

Your clients are selling their current property to finance the investment. Assume it will sell for double what was paid. The equity remaining after the loan is discharged will be used to invest in the apartment complex.

Outputs:

Answer the following questions

$1.$ Is this a good investment? Why or why not?

$2.$ What is the break$-$even point of the investment? The breakeven point is where the IRR equals the investor's required rate of return. What adjustments were made to achieve the breakeven point?