please highlight answers. I can not figure out how rental income goes up every year.
1. Apply What You've Learned - Real Estate and High-Risk Investments Scenario: You are considering investing in real estate-both for the short-term cash flows and the potential long-term capital gains-and are evaluating both a commeroal lease property (such as a strip shopping center or an office building) and a residential rental property (such as several rental houses or a smali apartment complex). It is likely that you will invest in only one of these properties at this time. The general data regarding these inventments is as follows: The first potentaal investment congists of a seven-store shopping center, which has a current market price of $750,000. Of this amount, $187,500 represents the cost of the land, and the balance, $562,500, is attributable to buildings on the property, The second possible investment, which costs 5450,000, coneists of a small four-unit apartment complex, 5135,000 of the investment's total price is reflects the cost of fand, and the remaining $315,000 is associated with structuree on the Iand. For both properties, you believe you can increase the rents 2% per year for each of the next four years, and expect to sell either property at the end that time. You desire a return of 9S on your investments, 16: Apply What You've Learned - Real Estate and High-Risk Investments Rental yield (%)=[( Monthly rent * 12)/( Purchase price /2)]100 Rental yield (%) - [( Annual rent/2) / Purchase price ]100 Rental yield (%)=[(( Monthly rent * 12) / 2) / Purchase price ]100 In the equations above, the reason that the values are divided by two is that it is assumed that. of the spent on expenses other than debt repayment. The rental yield expected on the commercal property is . Whale the expected yield on the residential property is Based on their respecive rental yields, the is the better investment. Another indicator of their relative attractiveness as an investment is each property's price-to-rent ratio. The shopping center has a price-to-rent ratio of while the corresponding ratio for the apartment complex is Based on this data, the is the better investment. From an investor's perspective, a negative conclusion associated with an overly large ratio is that it suggests that property prices are very . Simiarly, a discouraging explanation for an overly ratio is that renta and market pnces are so dose in value that a financally astute investor would rather: a given property. The loan-to-value (UV) for the shoppino center is but is for the apartment complex. Given your other assumptions, complete the following two tables and then use your computations to answer several questions. Round all amounts to the nearest whole dollar. (Hint: Dont round intermediate calculations. Also, dont forget that capital gains are taxed at 15% if properties are sold for more than their original purchase arice.) The net discounted return expected from an imvestment in the shopping center-after deducting the cost of the irvestment-is Now perform a comparable analysis for the residential lease property: The net discounted return expected from an investment in the apartment complex-after deducting the cost of the investment-is
